Social media investors can be as faddish as teenagers. When Snapchat was released a decade or so ago it was dismissed as little more than a sexting app. Popularity with users then prompted the biggest tech market listing since Facebook. Within months it was written off as a Wall Street flop. Now it is back in demand. Its return has lessons for Elon Musk’s impending ownership of Twitter.

Wind back a few years and it was not clear that Snapchat’s parent company, Snap, would survive. Instagram had taken its best features and turned them into a glossy app with a billion users. By early 2019, Snap was leaking money. Shares traded below the price they had listed at two years earlier and bets against the company were mounting. By my estimate, it had about three years to turn things round before it ran out of cash.

Three years on and the company has managed to do just that. It has improved its digital advertising business and shored up its finances. Focusing on small groups and private messages has helped it to reach 100mn more users than Twitter. Its user base is growing faster than Facebook’s. 

Most important of all, it has regained its popularity with a young audience. If you are not a habitual Snapchat user this may surprise you but in the US, Snapchat has more Gen Z users in their teens and early 20s than TikTok, Twitter, Facebook or Instagram, according to data from eMarketer. That pipeline is prized by the digital advertising industry that social media companies rely on.

The generation that grew up online seems to value privacy over constant public displays of popularity. I see the same change happening in my own (much older) social media networks. Private groups on Telegram and WhatsApp are flourishing. Only a handful of friends still update public posts on Facebook or Instagram.

Evan Spiegel, co-founder of Snap along with Bobby Murphy, is now in his early 30s. That means he is also too old for the Gen Z age bracket. But when I asked why he thought Snapchat had retained a young audience, he pointed to private messages.

“Bobby and I grew up with social media,” he said. “I think the fact you can communicate on Snapchat with friends you care about, without worrying about competing for public likes and comments, means there is a whole new avenue for self-expression.”

By now, everybody knows that social media networks can make people feel terrible about themselves. Large forums can devolve into arguments and public posts can act as a highlight reel, giving followers the false impression that everyone but them is leading a perfect life. TikTok has found success in looser, less polished videos. But the intended audience is strangers, not friends.

This is bad news for companies that want users to interact with as many people they know as possible. In 2019, Facebook founder Mark Zuckerberg declared that the future lay in private services. But his company, Meta, has not managed to turn its private messaging app WhatsApp into a source of significant revenue. Twitter is testing a feature called Circles, in which users share tweets with a select group. But racking up a big follower count is still the measure of success on the platform.

Snap’s popularity is not just down to private messages. It has fixed its Android app, sold just under $5bn of convertible debt to create a cushion of cash and produced new ideas to keep users engaged. An interview with Snapchat account holders in their teens and early 20s last year found they liked the app for all sorts of reasons, including messaging friends, keeping an eye on their exes via the Map function and looking at their own saved photos.

Not everything has changed. Snap still insists on calling itself a camera company when it is best known for its social media app. It is still fixated on hardware, recently releasing a little yellow drone called Pixy. And it is still making a loss, though it is forecast to report positive net income this year. Like all social media companies, it has not found a substantial way to make money beyond digital advertising.

But Spiegel, whose leaked fraternity emails, which he has apologised for, showed he was once, as TechCrunch put it, “kind of an ass”, has grown up. So has his company.

As investor attention fell away, Snap has developed its business while betting on a future of augmented reality. It engages in commercial deals while investing in wilder ones. This year, it bought French start-up NextMind, which works on tech that lets users control virtual images with the power of thought.

Perhaps the biggest takeaway from Snap’s turnround is the benefit of experimentation without the heat of high investor expectations. By taking Twitter private, Musk may be able to do the same.

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