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Snapchat's Redesign Threatens to Undermine the Good Earnings News

Rich Duprey, The Motley Fool

It's one step forward, two steps back for Snap (NYSE: SNAP), which was basking in the glow of a better-than-expected earnings report, only to be lambasted by, well, just about everyone over a seemingly botched app redesign.

CEO Evan Spiegel is putting up a brave front, saying the complaints "validate" the changes that were made and that he is "excited" about the response so far. Sure, that's the feeling anyone would get when they see one online petition garnering over 1.2 million signatures urging Snapchat to change the app back to the way it used to be.

Two women taking a selfie

Image source: Snap.

Snap has no intention of undoing the changes it's made, saying only that the new design "can take a little getting used to." That's the real risk: The intransigence of management to admit it may have made a mistake could very well alienate the new users the app has only just begun to attract again.

The year of living dangerously

After a year of numerous missteps following its initial public offering, Snap looked like it had gotten itself back on track. Its fourth-quarter earnings report showed the number of daily active users increased 8.9 million to 187 million, an 18% gain over the year-ago period and the first time in two years it had posted a higher rate of growth.

Even its recent decision to begin broadcasting live updates from the Winter Olympics in Pyeongchang, South Korea, but to not allow users to do so, looked like a wise move considering the controversial content that's often found its way onto Facebook's live programming, and even Alphabet's YouTube's.

Yet all that's at risk if there really is this groundswell of opposition to the app's makeover.

The redesign, which was originally announced in November, is the biggest overhaul of the application Snap's performed so far in a bid to keep its users engaged. The update walls off content from friends and family from that posted by celebrities and media. Instead of receiving all the content in one spot, users have to swipe left to get content from friends and family and swipe right for branded and celebrity content.

But users don't like the change, as the petition signatories make clear, saying that rather than making the app easier to use, it does the opposite and renders some content useless.

All in the family

Part of the problem with separating the content the way Snap has done is that many users feel a kinship with celebrities, and the change makes them feel like they're no longer friends. Spiegel dismisses the complaint, saying: "Exactly. They're not your friend."

Regardless of the truth of the statement, that kind of hubris doesn't help Snap. It's not up to the app whether its users are feeling an imaginary bond with entertainers. If that makes them more engaged on the app, then it's all good. It's called a "user experience" for a reason.

Another complaint about the redesign is that direct messages are scattered among the posts that disappear; friends with whom you frequently engage are topmost, but those with whom you interact less frequently are harder to find.

The changes that Snap made indicate a desire to differentiate the user experience in Snapchat from what's offered by Facebook or Instagram. In Facebook's News Feed, for example, content from friends and family is mixed in with sponsored corporate messages, branded video, and more. It's all a mishmash. But Spiegel has said your friends are different from the commercial interests, celebrities included. "They're relationships."

But what Spiegel believes and what users want may not be the same. Change can be jarring, and right after a major overhaul, users may feel like they're in unfamiliar territory. While the CEO says he feels even more engaged with the app after using it for several months, he may find that users are so alienated by the changes that they don't hang around long enough to have it grow on them.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Facebook. The Motley Fool has the following options: short March 2018 $200 calls on Facebook and long March 2018 $170 puts on Facebook. The Motley Fool has a disclosure policy.