Snap Struggles To Grow In Its Most Important Market

Snap’s user growth in North America – its most important market – fell troublingly flat in the third quarter.

That cohort of daily active Snapchat users has been stubbornly stuck at 100 million since 2022. The stagnation Snap reported for the region this quarter contrasts with an uptick in global user growth. European daily active users increased by 4%, and the rest of the world ticked up by 16%.

But Snap relies on North America for more than half of its annual revenue.

CFO Derek Andersen acknowledged the stagnation in North America when asked about it on a call with analysts, but didn’t elaborate. He instead pointed to the app’s efforts to strengthen peer-to-peer experiences, including using AI to better recommend new friends and building share-worthy lenses.

The user growth issues weighed on an otherwise solid third-quarter.

Revenue surpassed analyst expectations, growing 15.5%. The company’s overall loss persisted, but narrowed from the same quarter last year. The company reported a loss of $153 million. On a per share basis, that amounted to 9 cents. The company also announced a $500 million stock repurchase program.

The stock logged a 10% gain in extended trading. It is still down 35% since the beginning of the year.

Brian Pitz, an analyst at BMO, said that the company has tough competition for Americans’ attention, given the popularity of Instagram, TikTok and X. But Pitz said Snap’s primary function as a direct communication app can still set it apart.

“Snap’s path towards arriving in the promised land of profitability may indeed finally be simple enough to grasp,” wrote analyst Michael Nathanson, an analyst at MoffettNathanson.

Efforts to improve user growth are ongoing, but there’s no guarantee anything will draw in more North American consumers. The company is still slowly rolling out a simplified app design, with purportedly good results, which could attract untapped users.

“I think that simplification should help to funnel users to the most attractive content faster and make it a little less confusing for newer folks that come onto the platform,” said Pitz.

The good news is that users faithful to the app appear more engaged than ever. Time spent on Snapchat increased by a quarter year-over-year, and the average revenue earned from users worldwide rose higher than expected, from $2.93 to $3.10, and a majority of revenue growth came out of Europe.