The one chart that should scare Snapchat investors
User growth has been rapidly decelerating.
Snap’s IPO filing reveals a startling trend: While Snapchat, its flagship product, is still growing — as measured by daily active users — its growth has rapidly decelerated over the past year.
Specifically, Snap’s quarterly gain in average DAUs decreased to five million during the fourth quarter of 2016, down from a peak of 21 million in the second quarter and 10 million in the third quarter.
In its filing, Snap depicts its user growth in a bar chart of its average DAUs, which shows “up-and-to-the-right” growth, albeit at a slower rate throughout 2016.
But here’s another way to look at it, just isolating the growth. It’s easier to see the deceleration this way.
In its filing, Snap notes that its growth in December was better than the first two months of the fourth quarter, when “flat growth ... was primarily related to accelerated growth in user engagement earlier in the year, diminished product performance and increased competition.”
Snap goes into greater detail about each of these issues. But the most interesting question is around competition. (Snap’s description: “We also saw increased competition both domestically and internationally in 2016, as many of our competitors launched products with similar functionality to ours.”)
Mostly, that means competition from Facebook-owned Instagram, which cloned Snapchat’s popular “Stories” feature in August, early in the third quarter, which is also when Snap’s momentum started to fall off a cliff.
So that’s the big question: Will Snap be able to use its ingenuity to re-accelerate the growth of its network over 2017? Or have Instagram and other competitors — such as Snow, an Asian Snapchat clone — effectively neutralized it?