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Snapchat eyes course correction as stock drops around 48%

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Snapchat does a lot better at attracting younger audiences, who seem to just get the app

American tech venture Snap, the parent of the multimedia instant messaging app called Snapchat, will concentrate on expanding and diversifying its underperforming advertising business with a focus on augmented reality, CEO Evan Spiegel informed employees in a note.

The announcement comes amid a challenging period for the company, as it faces growing rivalry with major social media players such as Instagram parent Meta Platforms and Bytedance’s TikTok for advertising revenue.

“You may be wondering why, with all of the progress we’ve made in our business over the last year, our share price performance has lagged the overall market. The answer is simple: our advertising business is growing slower than our competitors,” Evan Spiegel said in the note.

At the start of August 2024, Snap projected a weak forecast for the current quarter, citing a decrease in advertising spend and is now expected to report fiscal 2024 revenue of USD 5.34 billion, according to LSEG data.

Snap’s stock has fallen around 48% so far this year. The company is also eyeing to revamp its market strategy by launching new ad placements powered by machine learning and automation. It is also developing augmented reality and smart glasses, much like its industry peer Meta.

“We are investing in creating augmented reality glasses that allow people to interact with computing, the world, and one another in totally new ways,” the note said.

In June 2024, Snap launched generative AI tools that enable users to apply more realistic effects when using their phone cameras to film themselves.

Snap is also testing a “simplified version of Snapchat,” Evan Spiegel says the tool aims to improve the platform’s accessibility and usability.

“The simplified Snapchat may be an attempt to capture older users, who are historically perplexed by the app’s not-so-intuitive design. Snapchat does a lot better at attracting younger audiences, who seem to just get the app. But this isn’t the first time Snapchat has tried to reconcile these issues,” TechCrunch reported.

During Snap’s 2017 earnings call, Evan Spiegel reportedly admitted to hearing that “Snapchat is difficult to understand or hard to use,” particularly for older customers. Months later, Snap pushed out a major redesign to reclaim those users, jamming Stories between private messages, among other changes that ended up infuriating more users than it attracted.

A 2018 Change.org petition to “remove the new Snapchat update” received 1.2 million signatories, while celebrity influencers like Kylie Jenner, Chrissy Teigen, and Marques Brownlee expressed their frustration. To make matters worse, the redesign badly affected the platform’s ad views and revenue flow, as it alienated its younger user base while failing in its bid to attract older users. By May of 2018, Snap was scrambling to roll back some of the changes.

As per Evan Spiegel’s letter, the early tests of the simplified redesign have been “directionally positive” so far, as the CEO wrote, “We will be thoughtful and deliberate about making a change of this magnitude.”

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