Dive Brief:

• In early Q2, Snapchat’s user growth continued to slow down, a trend that started late last year, according to data from app monitoring firm Sensor Tower cited in a report by The Drum. The number of downloads of the app dropped 22% in April and May this year compared to the same period in 2016.
• The photo-sharing app’s parent company Snap reported an average of 166 million daily active users, a 5% increase from Q1 of 2017 and 36% jump from this time last year, though some analysts had estimated that number to be nearer to 188 million, per The Drum.
• Last month, Snap released its first quarterly report since its $3 billion initial public offering in March, which failed to meet many shareholders’ expectations.

Dive Insight:

Snapchat’s user growth and retention have been hot topics for investors since the company's stock first hit the New York Stock Exchange in March but marketers have been closely watching these numbers since the app turned into a millennial juggernaut a couple of years ago. Ahead of its IPO, the photo-sharing company promised shareholders growth, not profit, so it’s likely that this data point is not welcome news. Marketers should keep in mind that Instagram’s history of copying Snapchat’s key features could continue to challenge Snapchat’s ability to reel in and retain new users as competitive pressures intensify. However, Snapchat had recently unveiled its Lenses feature around this time last year, which could have boosted the user growth data in 2016 and be skewing the year-over-year trends.

Despite the user growth issues, interest in the platform from some marketers is likely to remain strong. While Snap has admitted that it typically attracts a smaller audience than social media giants like Facebook, which boasts nearly 1.3 billion daily active users, there are indications its popularity among young consumers can set it apart. Despite being one-eighth of Facebook’s size, Snapchat rivals the social networking site for teen engagement. According to an eMarketer report cited by Recode, 59% of 12- to 17-year-olds and 68% of 18- to 24-year-olds use Snapchat at least once a month every month during the year. By comparison, Facebook sees 64% monthly engagements based on the same metrics with 12- to 17-year-olds and 77% with 18- to 24-year-olds. And Snapchat contiues to make clear moves to attract younger audiences, including enlisting social influencers, partnering with a YouTube celebrity for the Grammy Awards and announcing original shows from E!, ESPN and the NFL, among others.

While Snapchat has been eager to position itself as a major digital marketing player, key ad industry figures have also suggested that it has the potential to rival Facebook. Others have argued its user numbers and financial profile look a lot more like Twitter's did before its IPO, so it’s worth waiting out to see Snapchat’s next move.