Tencent's Growing Stake in Snap Could Sway Snapchat Redesign - eMarketer
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Tencent's Growing Stake in Snap Could Sway Snapchat Redesign

Learning from the WeChat model

November 10, 2017 | Mobile | Social Media

Snap Inc., the parent company of social network Snapchat, has had a rough week. On Tuesday, Snap reported disappointing revenue and user gains, and its stock swooned.

Snap Inc. CEO Evan Spiegel said the company was completely rebuilding its Android app and redesigning its iOS app, largely because user feedback had indicated that it was “difficult to understand or hard to use.”

The user experience difficulties may be behind Snapchat’s plateauing user growth. eMarketer projects the platform’s annual growth in user numbers in the US will slide into the single digits in 2018, at 9.3%, and fall to 3.3% by 2021. Snapchat will have 79.2 million US users this year, eMarketer estimates, with their ranks swelling to 100.2 million by 2021.

Data from Raymond James also shows how Snapchat is trailing nearly every other major social network in penetration among internet users in the US. Just 26% of respondents to the firm’s October poll said they used Snapchat—fewer than used Facebook, Facebook Messenger, Instagram and Pinterest.

Social Media Platforms Used by US Internet Users, by Age, Oct 2017 (% of respondents in each group)

One silver lining for Snapchat came in news that Tencent, owner of China’s dominant messaging platform WeChat, had increased its stake in Snap to roughly 12% by plunking down enough cash to purchase nearly 146 million shares.

Tencent’s relationship with Snap actually dates back to 2013, when it first bought a stake in the company prior to its initial public offering.

The augmentation of Tencent’s stake raises some interesting possibilities about what a redesigned Snapchat might look like. The companies have not provided any details, but it’s worth noting that Tencent’s WeChat app followed a different path to growth than Snapchat, and the platforms’ strengths might be complementary.

WeChat’s app effectively steamrolled competing messaging apps in China; the service recently released figures boasting 902 million daily active users (DAUs) as of September.

WeChat has become China’s killer app, used for everything and anything from payment processing and ecommerce to wealth management. And unlike Snapchat, WeChat first monetized its platform by taking a piece of transactions, and only later began building out its advertising business. By comparison, Snapchat has concentrated on visual-focused messaging services.

Tencent also owns the most successful mobile game on the planet, Honor of Kings (sometimes also called King of Glory); Tencent’s mobile gaming business earned it about $2.2 billion in the second quarter of this year alone.

In a statement emailed to Reuters, the firm said its investment in Snap “enables Tencent to explore cooperation opportunities with the company on mobile games publishing and newsfeed as well as to share its financial returns from the growth of its businesses and monetization in the future.”

Snap still has a difficult road ahead, as acknowledged by Spiegel. “There is a strong likelihood 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,” he admitted in a statement made earlier this week.

Rahul Chadha

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