The popular messaging app Snapchat is rolling out its first in-app purchase—“Snap” replays which will sell at $0.99 for three. Following the company’s introduction of advertising last fall, the new option to purchase replays may indicate that ad revenue is not meeting expectations and that the business is not nearly as healthy as previously thought.
The appeal of Snapchat lies partially in the ability for users to post one-time pictures and videos to their fellow users, ignoring the fact that there are simple workarounds that one can obtain to sneakily screen capture those messages without alerting the sender.
The new option to purchase Snap replays defeats that feature, and could potentially drive away users by allowing users to replay a racy Snap they received for all their friends within earshot.
As part of the update that introduced the for-pay replays, a set of new face-altering lenses was also included, which may ease the blow to users from the company’s first paid feature. Users were previously allotted one free replay per day.
The company currently has 100 million recurring users, and was bestowed with a $16 billion valuation earlier this year, but its poor financials from the previous year will need to be corrected before that valuation makes sense.
In 2014 the company lost over $120 million in 11 months between January and October, and brought in revenue of only $3 million. Because ads were only introduced in October of 2014, that number only represents one and a half months of ad revenue, but if one extrapolates that over the 11 month period, it comes to $22 million. Additionally, the losses included a one-time expense of $48 million which was due to payments for a data loss event and a litigation settlement with one of the cofounders.
The trend on the rates Snapchat charges to advertisers had dropped from a high of $100 per 1,000 views in January, to $20 per 1,000 views in May. Incidentally, the $100 rate was 50% higher than rates charged by Youtube. Advertisers have been wary of spending money with the company due to its mostly teen demographic as well as its unproven track record, but more companies may make the leap with the new lower rates.
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