Snapchat's Strategic Management Issues: A Comprehensive Case Study

This case study provides a comprehensive analysis of Snapchat's strategic management, focusing on the issues that led to its declining performance post-IPO. It examines the company's failure to generate substantial revenue, the limitations of its one-dimensional user experience, confusing interfa...Read More

Strategic Management

Table of Contents
Introduction................................................................................................................................3
Issue............................................................................................................................................4
Analysis and Evaluation.............................................................................................................6
Conclusion and Recommendation..............................................................................................8
References................................................................................................................................11

Introduction
Snapchat started in the year 2011 by Evan Spiegel and Bobby Murphy, is an application
developed for picture messaging. It gained popularity because it added a differentiating
feature that would delete the images after its been viewed for a few seconds. It grew
exponentially with 1000 plus user base, (with mostly teenagers) within a very short period of
time and continues till date.The valuation of Snapchat increased when Lightspeed invested in
it in the year 2012. Companies like Facebook were ready to buy Snapchat, as its users
especially the teenagers were leaving Facebook. Its tremendous growth and popularity
amongst the teenagers is giving tough competition to companies like Facebook and Twitter
(Malhotra, 2015).
Successful marketing strategies of Snapchat:
 Vanishing Photos- It allowed image communication with a distinguishing feature,
where the images were automatically deleted after being viewed for a few seconds.
 Stories- It came up with a new feature where one could amalgamate images and
videos and also weave a story. These stories could be viewed for multiple times
within a time frame of 24 hours.
 Snapcash- Partnering with Square, it started Snapcash where users were allowed to
transfer money to the bank account of any contact.
 Discover- It also came up with “Discover” as a product, where display of ads was
within the curated channels.
 Advertisements- Since, Snapchat was very popular and an active Snapchat user
would receive around 150 snaps each day, it tried to position its ads between every
20-30 snaps (Malhotra, 2015).

Issue
Snapchat is making the best use of the technology and has approximately 100 million daily
active users. Until 2015, it was worth around $16 billion. There has been continuous efforts
for trying new methods of monetization but, there has still not been any substantial revenue
generation. Snapchat has shown tremendous growth and has become very popular amongst
the youth generation in the age group of 13-34 years (Gotter, 2017). The continuous increase
in the user base and high valuation has made Snapchat a big sensation and on March 2017, it
offered its initial public offering (IPO). But, despite of all this, it could not be very successful
with its IPO. When in its third quarter, Snapchat could not meet its targeted revenue, the
stocks plummeted by 20% which was a great loss for the company. Since then, the company
could not trade above the IPO price. Since then, there has been disappointing results from the
company (Wade, 2017).
Reasons for the failure of Snapchat:
 Limited and One-Dimensional experience- The nature of the content that can be
shared on Snapchat is not something of very great value but, it is just a small
conversation or engagement. It is still popular amongst the youth crowd but then, it
does not mean anything for the future. In Snapchat, the experience is limited and
one-dimensional, as there are typical stories that are shared. This will not be very
alluring in the future (Singh, 2017).
 Confusing interface- Snapchat’s interface is popular amongst young generation but
the fact is that it is very confusing. For adults especially, it is very complex and
difficult to understand the app which makes its competitors more popular
(Constine, 2017).
 Expensive Advertisements- Making advertisements are not easy and it costs extra
money for the same, as the advertisers need to hire agencies that are involved

specifically in ad making. Moreover, the content on Snapchat cannot be posted or
shared on other platforms, which limits the users and makes it a tedious effort
(Castillo, 2017).
 Not the right metrics for advertisers- Snapchat does not provide the right metrics
for advertisers. And above all, it is difficult to get the snapchat ad account and is a
costly affair as well. It has already been late in the advertisement market and
despite that there is no right trackable metrics (Singh, 2017).
 Stronger Competitors- Since 2013, when Snapchat rejected Facebook’s acquisition
proposal, Facebook has been trying to imitate it. Facebook has added all features
like Stories, image and video filters, mobile web sharing and live video to
Instagram. It has also come up with WhatsApp Status, Messenger Day and
Facebook stories which are features that Snapchat came up with. Facebook is a
strong competitor of Snapchat and is easily able to convert their users which is a
great threat for Snapchat (Singh, 2017).
 Failed the influencer game- Snapchat has not been able to play the influencer game
well. Companies like YouTube and Instagram are able to make good relation with
the influencers and also get them on-board with their new features and tools. There
are around 50% of the marketing community that are increasing its influencer
budget, but they primarily consider Facebook and Instagram than Snapchat (Singh,
2017).
 No proper direction or revenue generating models- Snapchat keeps on adding new
features that helps in monetization, but still, it has no specific revenue generating
models which does not create trust amongst the investors (Singh, 2017).
 Better service on high-end devices like iPhone- it is basically concentrated in the
developed markets and run better on iPhone than any other Android phones. This

way the market is concentrated and limited to the youth crowd of developed
countries and have not reached the developing countries (Oreskovic, 2017).
Thus, we see that Snapchat’s major issues include lack of a revenue generating model, strong
competition that could imitate fast and do it in a much better way and also concentration on
only the youth. These are some of the problems that could be identified for Snapchat and
which needs immediate correction if, the company wants to stay in the market. Looking at the
scenario it seems that Snapchat’s decision of not letting Facebook acquire it, was not the right
decision for Snapchat.
Analysis and Evaluation
Though Snapchat had enormous growth as soon as it started, but an overall study helps to
understand that it was not a profit-making company. The high valuation of the company was
due to the increased user base but, with time, there has been a decline in the company’s user
base and also performance. There was lack of diversification in terms of users and market,
which did not allow the company to prosper in a very effective way. If the financial data of
the company is studied, it is clear that in the last few years it has not been able to become
financially sound. The profitability and net operating cash flow of the company has been
negative. (Investing.com, 2018)
Profitability as on June 2018 (Investing.com, 2018)
Gross Margin 19.89%
Operating Margin -159.46%
Pre-tax Margin -156.62%
Net Profit Margin -115.15%
Return on Assets -33.28%
Return on Equity -37.1%

Return on
Investment
-36.13%
The profitability of Snapchat is negative, which shows that the company’s financial position
is not good. The return on assets, equity and investment is also negative thus, impacting the
financial strength of the company.
Liquidity Ratio as on June 2018 (Investing.com, 2018)
Current Ratio 6.69
Quick Ratio 5.28
Cash Ratio 5.62
Liquidity ratio is a method of calculating a company’s capability to pay off its current debts
without raising external capital. Current Ratio (Current Assets/ Current Liabilities) is positive
which means that the company is capable of paying out its current liabilities with its current
assets. Quick Ratio (Current Assets- Cash/ Current Liabilities) is also positive which signifies
that the company can pay out its current liabilities even if it does not have liquid cash or cash
equivalents. Cash Ratio (Cash and Cash Equivalents/ Current Liabilities) is also on the
positive side thus, signifying that the company is capable of paying off its current debts with
the cash it has in hand.
Capital Structure as on June 2018 (Investing.com, 2018)
Total Debt to Total Equity 0.14
Total Debt to Total Assets 0.47
The capital structure of the company shows that it uses more of equity capital to finance its
assets. It has low leverage ratio and has a conservative capital structure. It also signifies that

low leverage ratio means lower growth rates. Thus, Snapchat should decide upon the optimal
mix of debt and equity. There is need for the company to find an optimal capital structure.
The overall study of the company’s financial statements helps in analysing that the
company’s financial position and capital structure is not strong enough. The company is not
generating profits and its dependence is mainly on its investors. There is need for
diversification of the user base and market so that it can increase its users. It has to look for
profit making features and also, use all the Snapchat features properly. It should attract more
advertisements and make sure that it is easy to use the app and also transit the ads to other
platforms. The little changes can help in improving the overall performance of the company
and also help it survive its competitors. Facebook subsidiary, Instagram imitated the features
of Snapchat but is more popular and profitable as it focused on a diversified user base and has
provided easy interface which is very comfortable for its users (Hartmans, 2017).
Conclusion and Recommendation
A thorough study about Snapchat makes it clear that it is not able to perform as s expected.
There has been a decline in the quarterly reports which has affected the stock price. The
investors are obviously not happy with the stock performance and it can have a great negative
impact on the company (Tully, 2017). It is also facing fierce competition from Instagram,
which is imitating all its features and capturing a large chunk of the market (Nield, 2018).
There are certain recommendations for the company that might help the company to acquire
the market again.
 Evolve or Improve the ad product- Snapchat’s ad product needs to be evolved and
improved at a faster rate. It is as of now, not improving as it was expected. It is a
costly affair when it comes to advertising and can also not be shared or posted on

other platforms. This feature should be removed and changes should be made so
that it is convenient for the advertisers (Deagon, 2017).
 Focus on the Creator Community- There is a need to create opportunities for the
creators, which would help in distribution and monetization. It needs to work on its
transition process that would make the life of its creators easy (Weiss, 2018).
 Focus on Android users/ developing countries- As of now, Snapchat is focussing
more on developed countries and iPhone users. When compared to iPhone, the user
base of Android is far more, so it is advisable for the company to focus on
developing countries and Android users, so that it can increase its user base
drastically (Khoury, 2017).
 Focus on adults as well- Snapchat is more focussed on the youth base and it has
still not understood the need for diverting its focus to adults as well. It has a lot of
potential users which are ignored just because they were trying to make a cool app
for the younger generation. Its time they understand and start targeting the users
above the age group of 35 (Taylor, 2018).
 Simplify the interface- It needs to simplify the interface so that it is easy for all age
people to understand and use it. Simplifying the interface would attract more
people thereby, increasing the user base and making it popular amongst all the
potential users (Wagner, 2017).
 Content Sorting- Snapchat needs to sort it contents well so that the most popular
and engaging stuff is shown first. This will bring all the undiscovered content in
the forefront and make the best use of machine learning (Constine, 2017).
These recommendations are provided on the basis of the problems identified. A little change
in the strategies and improvement in the product can lead to better performance of the

company and increase in the user base.These recommendations will help in facing the tough
competition from Instagram, YouTube and others.
A proper revenue generating model has to be prepared to show the investors that it is a
profitable company. A company without a stable income generation cannot prosper for long.
There is a need to increase and diversify the user base and make advertisement easy for the
small and medium- sized business as well. Currently, Snapchat is able to build brand
awareness of the companies but, it is not able to make direct sales. The CEO of the company
should focus more on data available and less on instincts to make sure that it is adapting to
change in the environment.He should focus on continuously increasing the user base as that is
the only USP of a technical company. The high valuation that it received in the start was only
due to the user base it had and thus, there should be continuous effort on increasing the user
base. Diversification of user base is also very necessary to increase the customer base for the
companies that are aiming at advertisements through Snapchat. It also needs to communicate
with the world about its future planning, so that there is trust factor amongst the users and
investors which could help in increasing the share price of the company.
Thus, the best action plan that can be recommended for Snapchat is:
Simpler interface User diversification Market diversification Reasonable
and right metrics for advertisements Openness and Willingness to trust data
Communicate with the world
It is time for Snapchat to build the trust and confidence amongst the users and the investors
that it is a revenue generating company, focussing on all its potential users and re-designing
the application keeping in mind the users of all age group. It has to prove that it is not an
immature company without any specific direction or goal.

References
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snapchat-faces-as-it-gets-closer-to-its-ipo.html
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