Snapchat’s earnings on Tuesday were bad. The company made less money and added fewer users last quarter than Wall Street expected, a combination that sent the stock down more than 17 percent in early after-hours trading.
Here’s why Snapchat’s big redesign isn’t working
Advertisers are scared and users aren’t using the app the way CEO Evan Spiegel originally thought.
The culprit for the bad quarter: Snap’s recent redesign, which was rolled out in January and made headlines for all the wrong reasons. (Basically, a lot of people didn’t like it.)
It turns out that user frustration actually hurt Snap’s business.
“Our redesign created some headwinds in our revenue this quarter by disrupting user behavior and creating some apprehension among our advertising partners,” CEO Evan Spiegel said on Snap’s earnings call with analysts.
It was clear that analysts are worried about what that means, as Spiegel and Chief Strategy Officer Imran Khan then answered nearly 40 minutes of questions, many of them specifically about the redesign.
Why did advertisers pull back on spending, one analyst asked. Khan blamed negative sentiment around the redesign, a lot of which was covered in the media.
“At the end of the day, advertisers are rational. They want to advertise and they want to drive return on their ad spend,” he said. “But at the same time they’re human. When there’s a lot of negative news in the press every day, it does give people pause. It does influence buying decisions.”
What about usage inside the app? Spiegel says that users are still spending more than 30 minutes per day inside the app but that the redesign is a work in progress. The premise of the redesign was to separate all personal content — like stories and private messages — from professional content, like Shows and publisher Stories. Spiegel says the company has found that that separation doesn’t necessarily work the way it expected.
“We learned that combining watching Stories and communicating with friends into the same place made it harder to optimize for both competing behaviors,” Spiegel said. That is, Snapchat learned that the content format might matter just as much as who shares it. Stories are more of a passive consumption experience, whereas private messaging is more active and intimate.
That realization is one of the reasons Snap already redesigned its redesign for some users, moving Stories from people’s friends back to the same page as Stories from publishers and brands.
“That way your friends come first no matter where you are in the application, but we can still optimize for watching content on one side of the service and communicating with friends on the other.”
One important takeaway from the call is that while Snap is obviously open to tinkering with the redesign, it’s not going to revert back to its original look. Spiegel feels strongly about separating personal communication from public content, even if the details are still being ironed out.
“A change this big to existing behavior comes with some disruption,” Spiegel said. “The redesign lays the foundation for the future of both our communication products and our media platform, and we look forward to doubling down on both.”
Hopefully for Snap, investors also believe in that vision, too, even if it takes a while to materialize.
This article originally appeared on Recode.net.
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