Friday is the first anniversary of Snap Inc.'s (SNAP) initial public offering, but investors certainly aren't celebrating.
The company's rough first year as a public company has been punctuated by numerous challenges, including the recent controversial redesign of the social media app. Analysts say Snap represents a cautionary tale of a popular startup going public before becoming profitable.
"[Snap] is a one trick pony, and they're not ready for prime time," GBH Insights analyst Daniel Ives said. "The past year for investors had a lot of pain, headaches and disappointment."
Stifel's John Egbert said that the uphill battle began when Snap first missed analysts' massive expectations, in part because the company did not give investors any guidance its first year.
"We vastly overestimated how well [Snap] was going to do," Wedbush analyst Michael Pachter said.
Over the past year, shares of the company have largely traded below the company's first-day closing price of $24 as Snap struggled to monetize the app and Facebook Inc. (FB) and Instagram's copied some of its most popular features.
The recent redesign was the change the company needed, Ives said: a chance to focus on broader demographics and ultimately provide long-term growth. The company announced the overhaul in November, saying the new format would make the app easier to understand by adding an algorithmic feed and separate tabs for Stories and brand content.
"Expanding the product is a necessary evil to get where they need to get," Ives said. "It's near-term pain for long-term gain."
But the redesign has received backlash from some of its most avid users, with more than a million people signing a petition to undo the changes and social media star Kylie Jenner criticizing the app's new look on Twitter (TWTR) . The day after Jenner's negative tweet, Snap shares plunged 8%.
"That speaks to an investor base that's nervous," Ives said.
Data from Stifel shows that Snapchat's total U.S. audience recently declined about 0.1% and that its audience reach across top international ad markets fell 1.1%, showing that the redesign could be turning users away from the app. But Egbert said that the declines might not last.
"The good outcome would be that users get comfortable [with the changes] or at least think they're as good [as the previous version]," Egbert said. "The bad outcome would be material and prolonged decrease in daily active users."
Snap can still turn things around, but Pachter said the company's losses aren't recovering fast enough, and if the company doesn't turn a profit by 2020, "the stock's not going to work."
Both analysts said that it will all come down to monetization, and if the redesign does bring advertisers to the platform and users don't bolt from the app, Snap could still rebound.
Snap shares rose 4.7% to $18.01 on Friday. The stock has gone up 23% since the start of this year.