(Bloomberg) -- Snap Inc.’s photo-sharing app Snapchat is predicted to lose users in the U.S. for the first time this year, suggesting the company’s latest efforts to broaden its audience with new features like gaming won’t revive growth in the short-term.
Snapchat will have 77.5 million monthly U.S. users in 2019, a 2.8 percent decline from a year earlier, according to industry analyst EMarketer. The research firm pointed toward fans’ lingering dissatisfaction with a redesign of the app and significantly lowered its projections from those made six months ago. It now predicts that Snap’s user growth will level off in 2020.
“The methodology of EMarketer’s recent forecast is flawed,” Snap said in a statement. “The report does not factor in key recent developments at Snap, such as our revamped Android app, or reference our statement in February that we do not anticipate a sequential decline in our daily active user total in the first quarter 2019."
Last year, the company suffered from executive turnover and reaction to the redesign. Facebook Inc.’s photo-sharing app, Instagram, also unveiled features that mimicked those of Snapchat, luring away users, EMarketer said. Snap’s shares plummeted 70 percent by late December from its 2017 IPO price, as investors became increasingly skeptical the company could improve its financial results and grow amid stiff competition.
“Many users didn’t like how Stories and chats were mixed together in a confusing redesign that went into effect in late 2017 and was broadly available by early 2018,” EMarketer forecasting analyst Showmik Podder said Wednesday in a statement. “The backlash was so severe that Snapchat was forced to scale back some of the changes just a few months later.”
Snap reported last month that daily active users -- its user metric -- were unchanged in the fourth quarter of 2018 from the previous quarter. That came after a quarter-to-quarter decline of 1 million daily active users in the third quarter.
While the company didn’t provide a specific user forecast for the first quarter of 2019, interim Chief Financial Officer Lara Sweet said in a conference call that “we are cautiously optimistic and we do not foresee a sequential decline in daily active users.”
EMarketer’s forecast may dampen Wall Street’s recent optimism that Snap is back on the right track. Shares have more than doubled this year, bringing the company’s market capitalization to more than $16 billion. Its fourth-quarter results exceeded analysts’ projections and showed stabilization in user numbers. The company also recently announced an expanded advertising network, improved augmented reality and camera features, a new video-game service and original shows.
Snap shares pared some of their losses after the company issued its statement. They were down 2.5 percent to $12.04 at 2:46 p.m. in New York Wednesday.
The in-app gaming service may increase the amount of time users spend on Snapchat, according to EMarketer, but it won’t be enough to significantly boost user growth. The firm projects that Snapchat will add 600,000 new users between 2019 and 2023.
EMarketer projects that Instagram’s U.S. audience will increase 6.2 percent in 2019 and the app will add 19 million new U.S. users by 2023. EMarketer said its relies on monthly active user estimates to remain consistent across social media platforms.
“Increased competition from new and existing social platforms is partly to blame for Snapchat’s decline,” said EMarketer senior analyst Jasmine Enberg. The research firm says “Instagram will pick up many of those leaving Snapchat.”
Snap said EMarketer’s forecast “is more than 10 million off from Snap’s publicly available reach on our ad buying tool, its thesis is narrowly focused on the app redesign from over one year ago, and its methodology draws on self-reported survey data that’s unreliable in our core 13-34 year-old demographic."
(Updates with Snap statement in third paragraph.)
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