Weekend Read: Leaked Memo Provides A Peek Behind Snapchat’s Curtain
Late on Friday Cheddar released an internal memo written by Snapchat founder Evan Spiegel. The document addressed a wide array of issues Snapchat is struggling with, and provided an internal roadmap for turning the company around. It’s a really long read (6,500 words!), so I’ll save you the time with this summary of the highlights.
Overall Spiegel’s memo tries to be upbeat/inspirational, but he does finally admit that their recent app redesign was a failure. According to Spiegel, “The biggest mistake we made with our redesign was compromising our core product value of being the fastest way to communicate . . . . we slowed down our product and eroded our core product value.” While he didn’t provide a solution to improve the current app design, at least admitting there’s a problem is the first step towards recovery.
Spiegel also talked about the competition, especially Facebook-owned Instagram. He stressed the importance of building a competitive “moat” to protect Snapchat. In this case Snap’s moat is the first-mover advantage – because if everyone in a cohort is using Snapchat they won’t need to use a different social platform. (FWIW – this logic feels a little over-simplified to me.) Spiegel admitted they had given up their first-mover lead in the US, and stressed the need to push into emerging markets during 2019.
Finally, Evan Spiegel addressed the “P” word – profitability. He put forth a stretch goal of being break even by Q4’18 and profitable for the full 2019 fiscal year. Since there’s more money coming in the front door (ad rev was up +49% YoY in Q2), achieving profitability could be attained through cost controls.
This memo wasn’t meant to be read outside of the company, which makes it more insightful than the polished corporate speak in an earnings report. While Wall Street probably appreciated the honesty, the reaction to the message wasn’t good. In after hours trading Snap’s stock dropped 5% to $7.74 (an all-time low), and a few fund managers dropped their price outlook further to $7. I guess the truth really does hurt, right?