Snap Inc. (SNAP) CEO Evan Spiegel's views on unlocking his company's core value is boosting shares on Friday.
Snapchat shares soared above $8 per in pre-market trading, gaining 1.7% at 9:44 a.m. in New York.
The memo, published in full by Cheddar, sets a roadmap for ambitious goals: a break-even for the fourth quarter of 2018 and profitability for 2019. The development would be a remarkable turnaround for a company renowned for burning cash.
"We found the tone of the memo to be largely positive, a welcome message given the struggles at Snap over the past two years," Deutsche Bank AG analyst Lloyd Walmsley wrote on Thursday night.
The memo begins by pointing out the mistakes that have led the company to offered shareholders a nearly 50% loss year to date, including the rushed nature of the redesign.
"The biggest mistake we made with our redesign was compromising our core product value of being the fastest way to communicate," Spiegel wrote. "Our redesigned algorithmic Friend Feed made it harder to find the right people to talk to, and moving too quickly meant that we didn't have time to optimize the Friend Feed for fast performance. We slowed down our product and eroded our core product value."
The stock has been hit hard by its update, which managed to decrease daily active users in the second quarter, the first time for that to happen in the company's history.
Fighting to Get On Track
Spiegel said that a focus on speed can help the company recover its leadership role and tackle threats from Facebook and Instagram.
The step back in recent quarters has opened the door for Facebook Inc. (FB) to compete with Snap through its Instagram story and direct message products.
While Snap has floundered, Facebook's Instagram has surged to over 1 billion monthly active users.
"As long as we continue to deliver our core product value of being the fastest way to communicate, the network effects of our product will make it harder for other companies to compete by copying our core product value," he explained. "Put simply, if a competitor made an exact copy of Snapchat (like Poke or Instagram Direct) it wouldn't be able to offer as much value as Snapchat because there wouldn't be anyone using it."
He said that the company can continue to increase its speed to "widen its moat", it will regain market leadership.
To be sure, the memo also just how many challenges Snap still has to overcome and uphill battle they face.
Snap reported a 2% decline in daily active users in August, citing redesign challenges.
The total number of users dropped by 3 million in the second quarter, according to the company filing.
For now, analysts are cautious that Snap can gain back the lead it relinquished on its redesign.
"We remain cautious on Snap shares given the potential for further daily active user declines until Snap more broadly rolls out its new Android redesign, which itself may be too little too late," Walmsley wrote. "We think investors need to see a return to daily active user growth and stabilizing revenue growth for shares to gain support, and we think that is not likely near term."
In the near term, the market seems to see a flash of hope that the cash-burning camera company might be able to one day attain the picture of profitability.
In the longer term, memo also acknowledged the many challenges ahead.
"For the billions of people who don't use Snapchat, it's day one, not year seven," Spiegel said in the note.