Despite Beating Earnings Expectations, Snapchat’s Losing Popularity Among Students
Consumers might want to consider a switch - Snapchat is bleeding users by the millions.
Although the social media giant beat third quarter (Q3) earnings expectations on Thursday by reporting $297.7 million in earnings compared to the $283.2 million estimate, Snapchat (NYSE: SNAP) stock dropped 10 percent in after-hours trading.
Snapchat, which went public on the NYSE in 2017, has had a rough year. Stock peaked at only $20.70 in early February before dropping to its current price between $6 and $7 over the summer.
In fact, Snapchat lost about 1 percent of their daily users between Q2 and Q3 - around 2 million. As of September, the company is down to 186 million users. Combined with the stock plummet, it’s clear that Snapchat isn’t out of the woods.
And, unfortunately for the social media giant, this user loss is becoming a trend. Previously, Snapchat shrunk over the past three quarters from 191 million to 186 million users. Even Snapchat’s CFO Tim Stone told analysts on a conference call that daily users are expected to drop even more in the upcoming quarter.
With its stock on the rocks, Snapchat seems to be in trouble.
But what does this mean for the largely millennial and Gen Z demographic Snapchat attracts? Are college students actually using Snapchat anymore, or is the yellow ghost getting ghosted by users in favor of rival Instagram (Nasdaq: FB) stories?
“Snapchat seems to be losing popularity with their core demographic - a.k.a. millennials and Gen Z kids, and investors are leery of the app,” said Alex Nicoll, a senior at the University of Arkansas and former Dow Jones New Fund intern.
In fact, to Nicoll, Snapchat’s value was thrown into question once the Facebook-owned giant moved in on its territory.
“Instagram changed the game when it started allowing stories on the app. One of the major draws to Snapchat was the stories option because people could see what we were doing all day, like a living diary, but once Instagram introduced its own version, Snapchat was not as necessary as a tool anymore,” Nicoll claimed.
But, according to Pew Research Center this year, 78 percent of adults aged 18 to 24 still use Snapchat, compared to 71 percent of the same demographic using Instagram. However, Instagram seems to be gaining traction, especially among college students.
According to CNBC this year, Instagram stories has attracted over 400 million daily users— dwarfing Snapchat’s reported 186 million by over 46 percent.
For Taylor Rogers, a senior at New York University, Instagram seems to be the main social media platform used by her peers. Although she never hopped on the Snapchat bandwagon, she claims she won’t start now.
“The idea of Snapchat never really appealed to me, but right when I considered getting it to avoid feeling left out, Instagram stories were introduced and most of my friends started posting a lot on there so I didn’t feel I needed it anymore,” Rogers said. “Instagram stories has made it redundant, and then they pissed off their core users with an unsuccessful redesign. Obviously that didn’t directly affect me, but it took me from a place of considering joining to being sure I never will.”
For students like Rogers, the advent of Instagram stories in August 2016 meant an alternative way to share photos or videos in a story format that threatened to make Snapchat superfluous.
Olivia Bolling, a sophomore at The King’s College in New York City, claims the original “incentives” of Snapchat like the streak feature are becoming increasingly irrelevant for college students.
“I definitely think that especially streaks in general are not really a big deal for my friend group or the people my age anymore - whereas at one time, streaks were a really big thing,” Bolling said. “That incentive has kind of lost its power, so people that were staying on Snapchat to keep up their streaks now don’t care, so they’re just switching over to Instagram.”
Agreeing with Bolling, Rogers claims the trend is clear.
“At NYU, Instagram has reigned superior since about my sophomore year,” Rogers claimed. “I know a lot of people still use Snapchat, but from where I sit most NYU students regard Instagram as their main, most important network.”
But it’s not just students at The King’s College and NYU seeing a decline in Snapchat usage - this trend rings true for other schools as well.
According to Nicoll, Instagram poses a better option for students at the University of Arkansas to reach more of their circle.
“My friends put more emphasis on what they post to their Instagram accounts than they do to their Snapchat because they have more followers and a more public image on Insta,” Nicoll claimed.
It’s apparent by the bearish attitude of Snapchat investors in recent quarters that Snapchat needs to make a grab for new users - and fast.
"If management is able to stabilize the user base and continue to show early stage monetization growth, the upside could be considerable, similar to [Twitter’s] outperformance over the past year," Goldman Sachs analyst Heath Terry wrote in a research note earlier this month.
Rogers seems to agree. As a current intern at CNN Business, she understands the correlation many investors are making.
“I’ve heard there is a lot of concern about slow user growth that I think is very valid. From where I sit, the future of online advertising is through influencers, which are concentrated on Instagram and YouTube,” Rogers said.
But even apart from users, Rogers claims Snapchat seems to be losing support from other sources as well.
“I heard [Friday morning] that CondeNast is a pulling a few of its publications off Snapchat and letting go of their Snapchat teams, further signaling that it's not the right platform for commerce,” Rogers said.
But the paradox of Snapchat (and even Twitter) bleeding users while beating earnings has thrown into question the value of earnings reports for investors - as indicated by the loss of investor confidence.
According to recent reports, investors predict a 14 cent drop in shares over the next quarter - which could put Snapchat at a new low.
Although it may still be far off, what would a world without Snapchat look like - especially for college students?
“I definitely think it wouldn’t really affect me all that much except for the ‘memories’ that I have that I want to keep up with,” Bolling said. “I think that Snapchat is good for more personal approach to sending photos, but at the same time, just having that one, centralized Instagram story helps me to care about what I’m posting and do it maybe once a day or once every other day.”
Adriana Bachicha, a sophomore at NYU, seems to agree.
“I don't think that losing Snapchat will have a large impact on society considering that Instagram does provide a lot of the functions that Snapchat has and more,” Bachicha stated.
However, others like Nicoll believe a Snapchat-less campus might be a struggle given how the app’s handy chatting feature has become a part of his social media routine.
But while suffering the loss of Snapchat text may impact some students’ communication channels, it is evident that both the user and the investor are growing tired of Snapchat’s mediocre performance.
“Losing Snapchat might bring even more informality to other platforms, but I think that Snapchat might have already been around long enough to have made its mark,” Rogers said.
After fluctuating slightly, Snapchat stock finished trading at the bell on Friday at $6.28 per share.