Slowing audience growth. Declining ad prices. A frustrating product. Snap’s Q3 earnings report had echoes of Twitter.
The resemblance between Snapchat and Twitter is striking — and, for investors, likely jarring.
On Tuesday, Snapchat’s parent company, Snap, reported that its revenue and daily audience did not grow in the third quarter as much as investors had hoped, according to Bloomberg. In Q3 2017, Snap generated $207.9 million in revenue, 62 percent more than recorded in Q3 2016, but less than the $235.5 million that investors anticipated. Similarly, Snapchat attracted 178 million daily active users in the quarter, up 16 percent year over year but below the 180.5 million users that investors estimated it would have.
While Snapchat’s audience and Snap’s business are growing, their current growth patterns do not suggest the next Facebook so much as the new Twitter: An ad-supported platform struggling to attract a substantial number of new users and trying to justify the value of its existing audience to advertisers.
Slowing audience growth
Snapchat’s quarter-over-quarter daily audience growth rate in Q3 2017 was the lowest since at least Q1 2014. Not only did the global number only inch up by 2.89 percent between the second and third quarters, but the app’s European audience stayed flat at 57 million people. Positively for Snapchat, its North American audience did increase by 2.67 percent to total 77 million people. That’s important because Snap generates almost twice as much revenue per North American user than its average user, $2.17 versus $1.17.
Declining ad prices, ballooning ad load
Snapchat’s primary ad format is declining in value. In Q3, the company served 400 percent more of its vertical video Snap Ads than year ago, but for 60 percent less revenue per impression than in Q3 2016 and 20 percent less revenue per impression than in Q2 2017. That’s alarming because of the other companies that have experienced a similar supply-and-demand dynamic, namely Yahoo and Twitter. By comparison, Facebook’s ad volume and ad pricing have grown for each quarter since Q3 2015.
To be fair, there is a justifiable reason for Snapchat’s declining ad rates. The company has been necessarily lowering the barrier to entry for brands to buy its Snap Ads through an advertising APIand self-serve ad-buying tool. That helped its advertiser base to grow five-fold in Q3 alone. But many of these new advertisers are small- and medium-sized business that cannot afford to pay as much per ad as major marketers. That has led to lower bid prices in Snapchat’s ad auctions. And since these automated auctions accounted for 80 percent of Snap Ad sales in Q3, that has driven down Snapchat’s average ad price and “made it harder to grow revenues at the rate we would have liked,” said Snap CEO Evan Spiegel during the company’s earnings call on Tuesday.
Upcoming product redesign
To Snap’s credit, the company realizes that its business is in a bad spot. But so did Twitter. For years, that company acknowledged that its product was hard to use and hurting user adoption and that it would roll out changes to fix the problem. On the same day that Twitter officially extended the maximum length of tweets to address users’ frustration with its product, Spiegel acknowledged people’s frustration with Snapchat’s.
“One thing that we have heard over the years is that Snapchat is difficult to understand or hard to use, and our team has been working on responding to this feedback. As a result, we are currently redesigning our application to make it easier to use,” said Spiegel.
Spiegel did not go into too much detail about the planned redesign. But it sounds like, after Facebook has spent the past several years copying Snapchat, Snap plans to reverse the trend.
“We are developing a new solution that provides each of our 178 million Daily Active Users with their own Stories experience, leveraging the tremendous benefits of machine learning without compromising the editorial integrity of the Stories platform that we have worked so hard to build. As part of our efforts around Search and Maps, we now index millions of Stories every day, meaning we have the long tail of content necessary to provide a truly personal experience,” Spiegel said.
Reading between the lines, the implication seems to be that Snapchat may roll out an algorithmically curated feed a la Facebook’s News Feed. That may not be such a surprise. Snap execs have privately floated the idea of an algorithmic feed since at least late 2015.
Embracing influencers
An algorithmic feed could also dovetail with Snap’s plan to finally embrace the creators that Spiegel said on Tuesday the company has “neglected.”
“In 2018, we are going to build more distribution and monetization opportunities for these creators in an effort to empower our creative community to express themselves to a larger audience and build a business with their creativity,” Spiegel said.
How Snap will enable creators to make money on Snapchat remains to be seen. Here’s one possibility: Through an algorithmically curated feed, Snapchat could insert Stories from creators that a person does not follow but whose Stories are similar to other content that person views in the app. Snapchat could then insert a Snap Ad after those related Stories and share some of the revenue with the creator if the viewer watches the ad to completion or swipes up to engage with it.
Using creators’ Stories to fill people’s feeds without forcing them to directly follow more people on Snapchat would align with Spiegel’s wish to not replicate Facebook’s friend-based feed “where in order to get more content in that feed, you need more friends. And when people start adding more friends, they feel less comfortable posting content, and so they start posting less, and that means that you need even more friends to get more content,” he said.
Lowering the barrier to higher-priced ads
Opening up Snap Ads to more advertisers may have lowered their prices, but it also increased Snap’s ad revenue. Opening up its priciest ad format, Sponsored Lenses, could have a similar effect.
Snapchat continues to see rising demand for Sponsored Lenses. In Q3 2017, it sold almost 15 percent more Lens campaigns than in Q2 2017 and twice as many as in Q3 2016, said Snap’s Chief Strategy Officer Imran Khan on Tuesday. Now, Snap plans to make it easier for marketers to make these ads.
Snap has built a tool for brands and creators to create their own Lenses. Called Lens Studio, the product sounds similar to Facebook’s AR Studio, and the company has been testing it “with a select group of advertising and creative partners,” Spiegel said, adding that the company plans to make the tool more widely available, without providing a specific time frame.
Courtesy & OA : martechtoday
