EMarketer Predicts a 36% Drop in Snap’s Ad Revenue

Brief

• The estimated revenue for Snap was reduced by 36% to get to $662 million in a revision of their forecast. In March, eMarketer had predicted that the owner of the company Snapchat would get to $1.03 this year, in sales per year. Programmatic ad buying has lowered the prices for the company’s inventory even though marketers are placing more ads on the platform.

• The revision puts Snaps estimates in the U.S at a growth of 19% by the end of this year. Last year, the increase was at 86%. Looking forward, eMarketer expects that the company’s sales will grow by 39% to $920 million by next year. By 2020, it is expected to grow by 31% to $1.2 billion as advertisers move to the platform.

• Snapchat will have its user base expand by 7% to get to 84.8 million in the U.S. If this happens, it will be way ahead of Twitter and Facebook. The forecast puts Instagram at a 13% user gain by the end of the year.

Insight

EMarketer’s report presents some potentially good news for the company. As of now, Snapchat is attracting an increasing number of advertisers thanks to the changes it has been making. How the ads placed go will have a lot to say about the continued growth. It is certainly true that the low ad prices attract marketers. However, if Snap sacrifices profits to bring in more brands, it could prove problematic in the end.

Snap’s year has not been a smooth sail. Earlier on, the company was looking to expand its user base with the redesigns of the app. This move ended up alienating the platform’s core users. Snapchat also introduced programmatic ad buying. Using automated bidding for ad placements has meant that Snapchat’s ad inventory go down in prices. The idea behind it is to make the platform accessible to more advertisers who before then may never have considered the platform as a viable option for their campaigns. There are advertisers who have seen strong returns on investments on the image messaging app, but there are those who remain skeptical. The biggest concern about the platform has been its targeting abilities and measurements. Compared to established rivals like Facebook, Snapchat still has a long way to go, according to the principal analyst at eMarketer, Debra Aho Williamson.

Snapchat should work on boosting user engagement if it will keep the advertisers interested. It has the fact that advertisers are looking for alternatives to the duopoly in its advantage. As of now, both Facebook and Google control 58% of the total digital ad spending in the U.S. Amazon is third after the duopoly, controlling an estimated 4% of the U.S digital ads share. Snapchat controls only 0.6% of the digital ad market and 0.9% of the mobile market in the U.S. According to eMarketer, the company’s key strength is in reaching the younger audiences and teenagers who share stories with their friends through the app.

In the face of a slowing rate of growth, Snap has been working to improve its content. It has partnered with social influencers and media companies while at the same time generating extra revenue streams from social commerce. Just last week, Snap rolled out a visual search function that will let users use their camera to search for and purchase products off Amazon. Due to Amazon’s affiliate marketing program, the feature has the potential to bring Snap additional revenue if it grows in popularity.

Snap has also instituted other practices with the intent of making the app popular with influencers, advertisers, publishers, and users. Earlier this month, the company partnered with more than 20 media companies in an effort to create more content for users in the Our Stories feature. The feature collects all posts in the app from users in a community. Snapchat has also made efforts to expand its appeal to marketers by introducing features like native commerce abilities. With such, influencers can earn money from products that are sold via their posts. Last year, the company added self-serve features such as the Ad Manager tool to appeal to advertisers.

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