What happens to Snap?

Every year, in early September, Snap CEO Evan Spiegel sends employees a lengthy letter featuring the company’s big-picture strategy for the next calendar year.

“The exhilarating rush of achieving stretch goals, of building things that matter, of surprising and delighting our community is at the heart of all that we do,” he wrote in this year’s letter, a copy of which I was sent by a source. “But some years, like this one, and the one before it, bring the bruising reality of missing our aspirations by a mile.”

When Snap went public in March 2017, I was on the floor of the New York Stock Exchange watching Spiegel and co-founder Bobby Murphy ring the opening bell. The excitement in the air was palpable.

What started as a sexting app at Stanford had defied the odds and reached escape velocity. Spiegel was the anti-Mark Zuckerberg who knew what the younger generation wanted from social media. And he wasn’t content for Snapchat to just be a mobile app; Snap was a “camera company” that was building for the post-iPhone world of AR glasses.

We all know how things have played out. Snap has been, to put it mildly, a financial disappointment since its IPO. Its market cap is currently hovering around where it was in 2015, when it was still privately held. A bunch of former Facebook execs are in positions of leadership. It no longer calls itself a camera company.

While the stock market has judged it harshly, Snap has also failed to meet its own goals year after year. In his 2018 annual letter, Spiegel gave the goal of reaching full-year profitability in 2019. Instead, Snap reported a net loss of $1 billion. Last year, when the goal was to at least reach breakeven, it burned $1.4 billion.

Of the nine business goals from last year’s letter, Snap has managed to almost achieve only one: growing the amount of time its daily users spend watching content by at least 10 percent year over year.

“Anywhere else, it would be tempting to give up and simply settle for incrementalism,” Spiegel wrote last month. “Not at Snap.”

Here are Snap’s internal goals for 2024, which are being reported here for the first time:

Grow Community and Engagement

475+ Million Daily Active Users in Q4 ‘24

Grow Content Viewers to 80% of DAU

Grow Content View Time per Viewer +15% in the US and Globally

Grow Revenue and Earnings

+20% YoY Full Year Ads Revenue Growth

14 Million Snapchat+ Subscribers by EoY and $500 million in non-Ads Revenue

$500 million of Adj. EBITDA and Positive Free Cash Flow

Lead in Augmented Reality

Grow Lens Unique Users to 75% of DAU

Grow Lens Actions (Save, Post, Send, or Play >6s) +10% per User

Leverage Generative AI to Transform Lenses and Content Creation

The daily user number seems quite achievable given Snap’s current growth rate and that it reported 397 million daily users last quarter. Twenty percent or greater ads revenue growth would be welcome after the negative growth recently posted. Fourteen million subscribers seems within the realm of possibility, though Snap is behind this year’s goal of having more than 10 million paying users. The EBITDA number is a big retrenchment from last year’s goal of making at least $1.5 billion by the end of 2023.

“We need to get our business on a firmer footing so we can take the risks necessary to innovate,” Spiegel wrote to employees. “Consumer augmented reality glasses are just around the corner, and a strong financial foundation will give us the best chance of fulfilling our vision of computing overlaid on the world through augmented reality.”

I beg to differ on the “just around the corner” point, but more on that in a bit…

For the past few weeks, I’ve been talking to current and former Snap employees at various levels of seniority, along with investors who track the company closely. Our conversations have revolved around the same question: how can the business be turned around?

It’s clear that Snap is set on replicating Meta’s ads business to the best of its ability, with the focus being placed on direct response advertising — ads that lead to buying, downloading, or signing up for something. Snap has structural disadvantages with this approach, though.

In a post-Apple App Tracking Transparency world, the benefits of a platform’s scale become even more self-reinforcing. Even though Snap has an impressively large user base, it lacks the flywheel of valuable user data for ad targeting and machine learning prowess that resides inside Meta and Google.

Work is happening right now to change that, with Spiegel noting that there’s “a roadmap for improving our machine learning platform to become state of the art over the next 3 years.” People I’ve spoken with who helped build Snap’s ads business are still doubtful that the company can win with this approach, given how behind it already is, though no one seems to see a compelling alternative, either.

Further complicating Snap’s business is the fact that, as Spiegel puts it, “Snapchat doesn’t directly monetize relationships” or the main messaging experience where users spend most of their time. Even Meta has decided that business messaging is the main way it can monetize WhatsApp, rather than ads.

If Snap can’t make Spotlight, its TikTok competitor, more compelling — last year’s goal of getting at least 30 percent of daily users active there has not been reached — the potential for its ads business will remain constrained.

Most people I’ve talked to who know the inside of Snap well agree that a significant chunk of employees could be laid off tomorrow with little to no impact on the core business. Investors remain aghast at the company’s costs, especially stock-based compensation, which has managed to increase after 20 percent of the company was laid off last year. Spiegel, meanwhile, doesn’t seem focused on reaching profitability anytime soon, as his financial goals for 2024 illustrate.

Though spending on hardware has been meaningfully pulled back since the early days of Spectacles, a new version of the camera glasses is still in the works. Snap made the right call by not trying to commercially sell the most recent version and instead treating it as a developer kit. Even still, if Spiegel didn’t control decision-making through his super-voting shares, there’s no doubt these efforts would have been shut down completely by now. Times have changed since the yellow vending machines of 2016.

Spiegel, of course, disagrees with me and sees his AR push as existential. “If we are successful, we can continue to offer an alternative to the harmful social media products that claim to connect us while driving us apart,” he wrote in his letter last month. “If we are not, I fear the world will veer further towards virtual reality that asks us to abandon the wonders of the natural world in favor of made-up misery.”

As for consumer AR glasses being “just around the corner,” that would be a surprise to Meta and Apple, which have invested more than Snap’s total revenue since IPO on trying to crack AR. Meta isn’t expecting to ship its first pair of true AR glasses until at least 2027. Apple has pushed back its AR glasses timeline more times than I can count at this point. Google, meanwhile, has given up on being a serious player in the space.

Does Snap make sense as a standalone company? While I don’t think Spiegel has any desire to sell the company, a logical acquirer would be Microsoft, given its strong desire to have more touchpoints with consumers and its attempts at buying TikTok and Discord. Apple is not one to make big acquisitions, though Spiegel and Tim Cook’s shared obsession with AR could make for an interesting alliance in the coming headset wars.

A more far-out theory floated to me recently is that some kind of tie-up with OpenAI could make sense. Snap is already one of OpenAI’s largest partners with its My AI chatbot, and OpenAI needs more distribution to compete with increasing competition from the Metas and Googles of the world. Sam Altman also seems interested in the intersection of wearable technology and AI.

Looming over all of this is the question of whether Spiegel is the right leader for Snap. He deserves credit for building what could end up being the last social network from the Western world to achieve meaningful scale in the mobile era. But he has yet to find his Sheryl Sandberg; a No. 2 who can truly take charge of the business and let him focus on product. He’s more dialed into the details of the ads business than ever right now, I’m told, and spending long days at the office.

The past certainly doesn’t have to dictate the future. But given how Snap has fared so far as a public company, the likely outcome is that it continues teetering along on its current trajectory, consistently overpromising and underdelivering. (Snap declined to comment for this story.)

I’m hearing that the business has started to recover from its recent doldrums and that the next earnings report in a couple of weeks could bring some good news, but who knows how investors will react. Spiegel isn’t giving up. He just needs to convince everyone else to not give up either.

A roundup of what else happened in the tech industry this week that you may have missed:

Some interesting career moves I noticed this week:

I’ll be back next week. In the meantime, send me your feedback, story ideas, and Cybertruck sightings. Thanks for subscribing.