Snapchat has nearly 1 billion monthly users. Why can’t it benefit?

Snapchat, an app that eliminates lost messages and face filters to make chatting with loved ones more comfortable, is closer to a goal that few social media platforms achieve: reaching 1 billion monthly users.

But Snap, the Santa Monica company behind the app, faces a major test. The 14-year-old tech company is still losing money and its share price has fallen as it barrels forward to popularize augmented reality glasses next year.

And although more people in developing countries are using the app, Snapchat usage in markets where the company generates more revenue per user, including the US and Europe, has fallen.

Snapchat has 943 million monthly active users worldwide, according to the company.

Growth in India, where TikTok has been banned, and Pakistan fueled Snapchat’s global user growth, data from market intelligence firm Sensor Tower showed. In India, Snapchat has more than 250 million monthly users, accounting for a quarter of its user base, according to figures released by Snap in July.

Meanwhile, in the third quarter, Snapchat’s monthly active users fell 4% in the US and double digits in France, Italy, Germany and the UK, Sensor Tower said.

Snap CEO Evan Spiegel wrote in a September memo to employees that the company is in a “victim moment,” likening it to a “middle child” wedged between big tech giants and smaller rivals.

“This moment is not just about survival,” Spiegel wrote in the memo. “It’s about proving that another way of making technology, one that deepens friendship and encourages creativity, can succeed in a world that often rewards the opposite.”

The 35-year-old tech executive shared Snapchat — initially known as Picaboo — with friends as part of a class project while studying at Stanford University in 2011. Back then, texts and images posted on social media like Facebook and Instagram were more permanent.

Snapchat’s logo is iconic and the app has differentiated itself from its competitors by giving people a way to share photos and messages that disappear once someone sees them. Instead of a social media app that opens to a content feed, Snapchat opens to the camera.

Instead of worrying about whether they look perfect, people are turning to quirky and creative ways to express themselves. They add effects to their selfies, turning their faces into cute dogs and even raindrops. The app encouraged people to continue sending these missing messages, known as ‘Snaps’, to their loved ones at least once a day, keeping what is known as a ‘streak’ alive.

As Snapchat’s popularity grew, promoting the rise of vertical videos, the social media giant’s competitors took notice. Snapchat’s co-founders rejected Facebook’s multibillion-dollar offer to buy the company.

Facebook and its photo-sharing app Instagram have copied Snapchat’s signature features including Stories, which allowed people to post photos and videos that disappear after 24 hours. This has prompted some Snapchat users to turn to its rival Instagram. Spiegel jokingly named himself the vice president of product at LinkedIn’s Facebook parent company Meta, which the social media giant took on to clone Snapchat’s features.

Although Snapchat has set itself apart from other social media, it faces the same concerns that tech platforms have faced, such as child safety and mental health. The app is popular among teenagers, prompting some users to question whether they are too old for Snapchat and should quit.

Alex Serek started using Snapchat as a teenager to communicate and make plans with friends, filling the app with high school and college memories.

But as she grew up, she realized that there were drawbacks to staying in the app. She constantly opened Snapchat to check her face, which made her feel bad about her skin. When friends posted about partying or going out, she felt the fear of missing out.

Last year, in search of storage on his smartphone, Sarek deleted Snapchat.

About a year later, the 24-year-old San Diego fitness influencer downloaded Snapchat again but rarely uses the app.

“I wanted to open it, but now I don’t even think about it,” she said. “I forgot I had it on my phone.”

Investors’ confidence in the company has decreased. By 2021, Snap’s stock had risen to more than $83 per share. Snap closed Tuesday at $7.64.

Competing with big rivals like Instagram, Facebook, YouTube and TikTok for advertising dollars has been a challenge for Snapchat and it has struggled to consistently turn a profit. Apple’s privacy feature has made it harder for advertisers to track users across apps and websites, creating an additional barrier for social networks.

Research firm eMarketer estimates that Snapchat will claim 2.1% of US social network ad spending by 2025, but said the share is declining.

Snapchat’s initial focus on missing messages made it harder for the company to engage with advertisers because people typically don’t want to see ads in the middle of private conversations. But the company is updating its advertising tools and expanding the places where ads are shown, including between short videos.

Although Snapchat is popular among Gen Z and millennials, its audience may limit which businesses want to advertise on the platform.

“It makes it really young and it naturally limits the advertiser’s leverage in their audience,” said Max Willens, senior analyst at eMarketer. If a business wants to advertise a retirement plan, for example, they might go to Facebook instead of Snapchat.

On Snapchat, advertisers have also leveraged augmented reality to promote their brands in unique ways for a younger audience. Snapchat users can transform themselves into a dancing McDonald’s McRib sandwich with digital animals from the Disney movie “Zootopia 2.”

Snap is looking for other ways to make money. The company offers subscription plans so users can customize the app’s wallpaper, personalize their digital avatars known as Bitmojis and see how often their friends view their content. It has started to limit the amount of free storage it offers to 5 gigabytes. AI firm Perplexity has said it will pay Snap $400 million over a year so users can find answers from its “AI-powered answer engine.”

In the third quarter, Snap’s revenue reached $1.5 billion, up 10% from the same period last year. The company reduced its net loss to $104 million, compared to a net loss of $153 million during the prior year period.

This month, JP Morgan analysts raised Snap’s price target to $8 after the surprise deal but kept an underweight rating on the stock, meaning they expect the stock to underperform.

The company said Snap has “significant market opportunity, an engaged user base, and a strong track record of innovation” but it is looking for “more consistent execution, improved user and revenue growth, and greater profitability.”

Snap made bold and expensive bets on the future of computing by releasing drones and glasses for taking photos and videos — though those products flopped. Now Snap plans to release augmented reality glasses in 2026 that will allow people to interact with digital images embedded in the physical world. Instead of pulling out your phone, people will be able to scan documents through the glass, stream movies, play chess and more.

For now, analysts say it’s too early to tell whether Snap’s bets will pay off or if the company will end up in a social media graveyard like Myspace or Win.

“There’s nothing written that says you have to be forever if you’re a social media platform,” Valens said. “Although almost all of them still have some kind of conflict in one state or another.”