The photo app Snapchat once enjoyed explosive growth – but now its revenue is set to decline in a sluggish online advertising market. Among other things, a subscription model should remedy the situation.
The photo app Snapchat is still gaining new users – but its advertising business is not taking off. After stagnating sales in the past quarter, the developer Snap internally expects a drop in revenue of between two and ten percent for the current quarter. Snapchat used to be known for explosive growth.
Snap has also recently slipped deep into the red. The bottom line was a loss of around $288.5 million in the last quarter after a profit of $22.5 million (20.7 billion euros) a year earlier. Sales remained at $1.3 billion, Snap announced after the US market closed on Tuesday. The stock fell nearly 15 percent in after-hours trading. The paper lost more than two-thirds of its value within a year.
The number of Snapchat users rose from 363 to 375 million within three months. It is striking that the number of users in the important North American market has been stuck at the 100 million mark for six months. In Europe, Snapchat recently had 92 million users – four million more than three months earlier.
Subscription model as a new source of income
Founder and boss Evan Spiegel referred to the weakening economy, which is slowing down the online advertising market. At the same time, he sees a silver lining: The demand from advertisers hasn’t improved – but it hasn’t gotten any worse either, he said in a conference call with analysts.
Snapchat continues to plague Apple’s iPhone privacy policies. App developers like Snap have to ask users for permission if they want to track their activity across different apps and websites to personalize ads. Many users rejected this, making ads less efficient on Snapchat and Facebook, among others.
Snap is therefore setting up a new platform for advertisers. The company emphasized that while the conversion costs sales in the short term, it is necessary in the long term and progress is being made to improve the system. A new mainstay of the business in addition to advertising is also to be a subscription model in which users pay for additional functions such as personalized notification tones or picture backgrounds. More than two million users recently signed up for a subscription called Snapchat+.