Snapchat user base falls to 186 million, decline to continue

Snapchat redesigned its app earlier this year which received harsh criticism from users globally.

Snap Inc’s shares tumbled as much as 12%. (Bloomberg)

Snapchat is on the decline.

Snap Inc., parent company of the app for sending disappearing photo and video messages, reported that the number of daily users fell for a second consecutive quarter, to 186 million. Analysts on average projected 186.8 million, according to data compiled by Bloomberg. Company executives said the app will probably lose users in the fourth quarter, too.

The company's shares tumbled as much as 12% in late trading after the report. Snap stock has lost more than half its value since a March 2017 initial public offering. While the company has a reputation for creative products that are popular among young people, its performance has been volatile, rocked by employee and executive turnover, as well as a redesign of Snapchat earlier this year that was criticised by many users and advertisers.

That redesign, championed by Chief Executive Officer Evan Spiegel, separated chats and postings of friends from the rest of the app -- the content from media organizations that is paired with advertising sold by Snap.

Snap said the quarter-over-quarter decline in its user base was primarily among those using the Android version of the mobile app, which has been plagued with development issues. The company lost users in North America and Europe, which are its most lucrative markets.

The company is testing a revised app for Android users, who represent "a global growth opportunity for us," Spiegel said. The company needs to reach users who are more than 34 years old, and work on its marketing and communications strategy to explain to them why they need to use the app, he said.

Spiegel didn't mention his other big growth challenge -- that Snap is competing with Facebook Inc. and Alphabet Inc.'s Google for users' attention and a slice of the digital advertising market. Facebook's Instagram copied one of Snap's more popular product features, Stories, and now sees far more activity on it than Snap does.

The CEO needs to explain his perspective on the Facebook threat, said Rich Greenfield, an analyst at BTIG, with "Instagram Stories' daily active users now dramatically larger than Snapchat and time spent among your core teen/young-adult demo now far more evenly split than a year ago between Instagram and Snapchat."

Still, Snap sales gained 43% to $298 million in the period ended September 30, topping the analyst average estimate of $283.4 million. The net loss narrowed to $325.1 million from $443.2 million in the period a year earlier.

Alongside the content from users, Snap has been investing in original shows and mobile magazines from media partners, including People magazine and ESPN. The company recently decided to develop its own mini programs, which it hopes will serve as examples for other partners about how to make compelling content on the app.

But there are some signs of discontent: Conde Nast is discontinuing its Snapchat channels for Vogue, Wired and GQ brands, and letting go of employees who were brought in to produce them, according to people familiar with the matter. The publishing company, which is also a Snapchat advertiser, is keeping its Teen Vogue and Self channels. Conde Nast declined to comment.

Snap estimated fourth-quarter revenue will be $355 million to $380 million. Analysts projected $373 million. The company's stock fell as low as $6.14 following the report, after rising 6.1% to close at $6.99 in New York.

Spiegel has been seeking coaching to help improve his management style, working through a period of low morale at the Los Angeles-based company, and communicating his vision for Snapchat's future.