How The Backlash Over Snap’s Redesign Could Impact Its Stock Price

+15.30%
Upside
11.48
Market
13.24
Trefis
SNAP: Snap logo
SNAP
Snap

Snap Inc. (NYSE:SNAP) has been rolling out a completely redesigned version of the Snapchat app to its users over the last few weeks. The new version of the app essentially separates the social content from the media, while overhauling the user interface. While the original intention of the redesign was to make Snap’s application simpler and easier to use for new users, allowing the company expand its user base in the long run, it hasn’t gone over well with Snap’s core user base, with over 1 million unhappy users signing an online petition asking the company to revert to the older version of the application.  Users have said that the app’s user interface is unwieldy compared to the older app, with the focus appearing to be on more advertisers rather than users. The company has also seen a significant jump in negative app reviews since the update went live. This means that the redesign could alienate some of Snap’s older and more engaged users, who are likely to be more valuable to the company, potentially impacting its revenue and daily average user (DAU) metrics.

We have created an interactive analysis outlining our expectations from Snap in 2018. We have also created a scenario (blue charts) which outlines how Snap’s valuation could potentially be impacted by the redesign. You can modify the scenario to arrive at your own price estimate for Snap.

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User Growth, Engagement Could Be Adversely Affected

Our downside scenario assumes that Snap’s daily active user base in the U.S. grows at a slower pace, rising to just about 78 million in 2018, versus our current estimate of  82 million (and just under 76 million at the end of 2017) as users migrate away from the app, and fewer new users sign on. The scenario also assumes that the company’s ARPU only grows to levels of about $10, versus our base case forecast of $12 and levels under $9 for 2017. This would be driven by lower engagement, if users don’t acclimate to the new design and simply use the app less. With these assumptions, our price estimate for Snap could decline to $14 per share, down by 20% from our base case price estimate of $17.50 as well as the current market price. We have excluded international markets from this near-term scenario analysis, as Snap’s international ARPU is negligible compared to the U.S. However, if the redesign impacts international user growth and engagement, the valuation downside could be even greater.

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Like our charts? Explore example interactive dashboards and create your own.