Snapchat Gains 7M Users – Revenue Ups 50%

Brief

  • During Q3, Snap’s revenue increased by 50% as Snapchat added users, and the company launched more tools to draw in advertisers. Snapchat counted 7 million more users per day to end the quarter at 20 million users.
  • Q3 revenues were at $446 million, $11 million more than analyst estimates. ARPU went up 33% to $2.12, which marks the slowest growth for the company since 2017. Snap expects a $560 million revenue on the upper limit, compared to last year’s $390 million. Analysts had forecast $555 million.
  • Snap does not see China’s TikTok as a rival, even if the social video app is growing fast. ‘They are partners for us, and we value what they offer to their community as different from our service,’ said Evan Spiegel, the CEO of Snap. Snap is planning to invest more in AR features to drive engagement with each DAU interacting with AR close to 30 times every day.

Insight

The higher growth in revenue for Snap during Q3 points to mobile marketers responding to sustained expansion in the platform’s user base and the company’s wide selection of ad tools. The growth in revenue and ARPU points to the fact that the company is improving in the monetization of its user base. The company has not yet seen a profit since its IPO, but it is close to exceeding Spiegel’s ‘stretch goal’ of showing better earnings before taxes, amortization, interest, and depreciation.

Q3 was the first full period that included the innovations the company announced in April. Among those innovations was the updated Snap Kit that was integrated with third-party apps to help expand the reach of the app. The company revealed fresh content and a gaming platform to allow users to have more reasons to be on the app. Discover saw an increase of 40% in its viewing time in Q3 from last year’s numbers.

‘2019 is the first year that the time spent on phone was more than TV in the U.S. This means that we have gotten to the tipping point of this change in behavior for viewing content,’ said Spiegel.

When Snap tested app-based purchases, they drove a 71% increase with a 23% lower cost-per-purchase, according to Jeremi Gorman, the chief business officer at the company.

‘This meant a 32% increase in revenue, with an 11% increase in impressions. We increased yield, revenue, and advertiser ROI simultaneously,’ said Gorman.

It is still too early to know if the features added in Q3 will help ad sales. As the third quarter ended, the company introduced Goal-Based bidding to allow targeting for viewers who interact with 15-second videos. Snap also lifted the limit on ads from ten seconds to three minutes to allow marketers to tell longer stories. Snap changed six-second commercials appearing in the streamed shows to become swipeable and let users choose the interaction they prefer – camera attachment, mobile website of long-form video.

It is also early to determine how the company’s pilot of dynamic advertising will affect the company during the holiday season. Last week, the company revealed a customizable ad format to allow marketers to form templates for putting product information and images to deliver to audiences. Early results look like they hold promise with brands like Vitaly, Princess Polly, and Shady Rays seeing gains.

Additional ad formats may help the company broaden its appeal to more advertisers. 76% of Madison Avenue executives said they had not advertised on the platform responding to an RBC survey. The finding points to the fact that Snap must improve efforts to tell advertisers about their business value and desirable young audience. Snapchat has reached 90% of U.S people aged 13 to 24 and 75% of 13 to 34-year-olds.

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