Crisis of Confidence: Amid Weak Earnings Report, Snapchat Promises Investor-Friendly Redesign

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Illustration by Tam Nguyen/Ad Age

Snapchat is testing what could be its biggest product overhaul with a redesigned app that promises to be easier to use, according to CEO Evan Spiegel.

Spiegel revealed plans for an app refresh in Snapchat's third-quarter report, which showed lower user growth than desired, increasing 3 percent quarterly to 178 million daily active users.

Snapchat reaches 70 percent of 13- to 34-year-olds in the U.S., and other developed countries, but it wants to appeal to an older more global crowd, non-digital natives who weren't born with high-speed wireless connections piped into the womb.

The ad business has been challenged, too, especially since the company has transitioned to a more automated, programmatic sales system, where brands pay less for ads. Ad revenue was $208 million, a 62 percent increase, though smaller than Wall Street Would have liked. The company operates at a constant loss. Snap was down $443 million this quarter.

Shares plunged as much as 20 percent in after-hours trading on Tuesday

The self-serve ad platform helped bring five times as many advertisers to the app compared to a year ago, but the price of ads dropped 60 percent year over year. Spiegel said the app refresh would hopefully improve ad performance and open new revenue opportunities.

Toward that end, the company is using a new version of the app internally, though Spiegel was vague on many details. He did speak to some guiding principles behind the change. The idea is to make the new product more intuitive for less-savvy consumers, even if that is likely to meet criticism from its longtime users who haven't had any trouble playing with the messaging and media app.

Focusing on Android could also help adoption overseas, where the Google mobile platform has greater market share than iPhones. Snapchat didn't say when the new app would be ready for Android or when it could appear on iPhones.

"There is a strong likelihood that the redesign of our application will be disruptive to our business in the short term, and we don't yet know how the behavior of our community will change when they begin to use our updated application," Spiegel said during a call with Wall Street analysts. "We're willing to take that risk for what we believe are substantial longterm benefits to our business."

Snapchat is rethinking social media and the whole "news feed" model, made popular on Twitter and Facebook, as it looks to develop a unique content platform built on its strengths, Spiegel said.

"Conceptually, we've been spending a lot of our time sort of studying the evolution of content feeds on mobile," Spiegel said.

Snapchat has plenty of content: 3.5 billion personal Snap messages are created daily, and top media partners produce shows and curate channels, and there are crowd-sourced stories from special events like sports and awards shows.

Spiegel said Snapchat would come up with new ways to personalize the content people see. And it will start catering more to to the creators on Snapchat, a departure for the company.

Snapchat is looking to develop a better relationship to the top personalities and stars that use the app, giving them more tools to reach audiences and even make money. The influencer community has often felt neglected on Snapchat, and that's one of the reasons Instagram has been such a tough competitor.

Instagram and its owner Facebook have adopted many of Snapchat's best features, like 24-hour stories, and it's easier for brands and creators to share their content on those platforms.

"We are going to build more distribution and monetization opportunities for these creators in an effort to empower our creative community," Spiegel said.

Snapchat also discussed its Lens Studio, where brands can build augmented reality filters, the kind the app made famous but have since been adopted by Facebook, Google, Apple and others. Snapchat has been less open with lens creation tools than Facebook and Google, which developed platforms for almost any partner to access.

Spiegel said the studio will open more widely, which could appeal to many critics in the agency and ad world who have found it difficult to work with the platform.

Snapchat shared another disappointment when it announced a $40 million loss from Spectacles, the camera glasses that went on sale last year but never lived up to the company's own hype.

Spiegel was asked what changed since he once touted the device was exceeding expectations.

"Because we were so excited, we made the wrong decision," Spiegel said. "We plan on avoiding a similar mistake in the future."

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