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Why Snapchat is shrinking

Snap lost users for the first time ever last quarter, and that’s concerning.

Evan Spiegel, Snap co-founder and CEO
Snapchat CEO Evan Spiegel
Asa Mathat

Snapchat’s user base shrank by three million people last quarter, the first time the company has ever reported a decline in users.

The fact that Snap’s daily audience is already shrinking represents a rather dramatic turn from two years ago, when Snap added 21 million daily users in the same quarter.

At the time, everything looked like it was growing rapidly ahead of Snap’s initial public offering, and Facebook investors were concerned that Snap — which had refused Facebook’s acquisition offers — might steal away the social giant’s users. Facebook responded by building Snapchat’s best feature, Stories, into all of its apps.

It looks like Facebook is safe after all. Not only did Snap’s total daily audience shrink, but so did its daily audience in its most valuable market, North America. That’s where the advertising industry is developed and Snapchat users generate more than three times as much in revenue as they do in Europe. Snapchat’s North American daily active users declined to 80 million from 81 million the prior quarter.

Why is Snapchat shrinking? Snap blamed the user decline on its recent redesign, which wasn’t very popular with users. The redesign aimed to separate users’ personal messages from the stuff they might see from brands and celebrities. That didn’t go over well, and the company has since tried to roll some of the changes back. Snap also blamed the redesign for its crummy first-quarter results back in May.

“We feel that we have now addressed the biggest frustrations we’ve heard and are eager to make more progress on the tremendous opportunity we now have to show more of the right content to the right people,” CEO Evan Spiegel said in prepared remarks shared on Snap’s earnings call.

Snap countered its decline in daily users by reporting that its monthly user base — a group it has never shared stats about before — was the biggest it has ever been. But Snap didn’t share how big that audience is, except in the U.S. and Canada, where it’s bigger than 100 million people. And even then, the metric mostly felt like a distraction from the more serious problem.

The fact that Snapchat has user growth issues at this stage in the game is concerning. The fact that it’s shrinking is very concerning. Snap’s argument has never been that it would be Facebook-big, but that it would someday be able to make money from its user base the way Facebook does. Snap liked to tout a highly engaged audience in the world’s most valuable advertising markets — the U.S. and Europe — as evidence that it has potential to make serious money off each user.

But while Snap’s business is still young, it’s nowhere close to Facebook in terms of how much money it generates from each user. Optimists will see this as a sign that Snapchat has a lot of room to grow. But just six quarters into life as a public company, Snap lost daily active users in both the U.S. and Europe last quarter. It’s a sign that Snapchat may not be as engaging as we think.

This article originally appeared on Recode.net.