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Can Social Media Tackle the Deceleration in User Growth?

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On Aug 7, Snap, Inc (SNAP - Free Report) reported that its user base shrunk by 3 million in the second quarter. Earlier, Facebook, Inc.’s (FB - Free Report) shares tumbled after its average daily user growth missed analysts’ expectations for the quarter. Twitter, Inc. (TWTR - Free Report) too reported that its monthly users dropped by 1 million in the same quarter.

Slowing user and subscriber growth is becoming a concern for both social media companies and streaming giants like Netflix, Inc. (NFLX - Free Report) . Understandably, users seem to be somewhat moving away from social media amid rising concerns of data privacy and fake accounts. At the same time, a number of companies are fast trying to penetrate the online streaming zone that might have been taking a toll on the subscriber growth of Netflix.

Snapchat’s User Growth Slows

Snap reported that Snapchat’s daily active users declined 1.5% to 188 million in the second quarter from 191 million in the last quarter. This is the first time that Snapchat’s user count has shrunk since its launch in 2011.

Snapchat had been a hit with youngsters because of its video feature. However, its user growth has been suffering ever since Instagram introduced the feature, Stories. Understandably, it will now be a testing time for Snapchat, which has been facing the pressure of slowing user growth.

Facebook, Twitter Face the Heat

Snapchat isn’t the only victim of slowing user growth in recent times. On Jul 25, Facebook reported that it managed to add only 22 million users worldwide in the second quarter, its lowest quarter-over-quarter jump since early 2011. While Facebook reported monthly active users (MAUs) of 2.23 billion, missing expectations of 2.25 billion, daily active users (DAUs) came in at 1.47 billion, falling shy of the expected 1.49 billion.

On Jul 27, Twitter’s shares plummeted on slowing user growth. The micro-blogging platform reported 335 million MAUs in the second quarter compared with 336 million in the prior quarter. Twitter has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Slowing user growth has been dampening the revenues of these companies. Despite making huge gains this year, Facebook has been suffering social and political backlash after it got embroiled in the Cambridge Analytica data misuse scandal, affecting the personal information of more than 80 million users.

This saw the company’s shares taking a hit immediately but that didn’t reflect in its first-quarter results. However, users seem to have lost faith somewhat in Facebook’s privacy policy that is evident in its numbers this reporting cycle.

User privacy has become a priority for social media platforms. This may have been one of the reasons behind Twitter’s slowing user growth. The company has been tightening its privacy policies and suspended about 70 million accounts in May and June.

Netflix Hit by Low Subscriber Growth 

Slower subscriber growth has been hurting streaming giant Netflix also. Despite being one of the best-performing tech stocks this year, on Jul 16, Netflix’s shares tumbled 13% in after-hours trading reacting to the company’s meager 5.2 million new subscriber addition in the second quarter, falling shy of its forecast of 6.2 million.

Understandably, an increasing number of companies are trying to explore the online streaming space. Amazon.com, Inc. (AMZN - Free Report) , Apple, Inc. (AAPL - Free Report) , The Walt Disney Company (DIS - Free Report) and Hulu are aggressively investing in original content. This slows the potential in the online streaming market, which is eventually giving subscribers more options to choose from.

Slowing user and subscriber growth definitely has turned out to be major concern for social media and streaming companies. It now needs to be seen if they succeed in winning back the faith of users in the days to come.

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