Dive Brief:
- Snap Inc., parent company of Snapchat, revealed a loss of $443.2 million, or 36 cents a share, during Q3 and said it will overhaul its signature social media app in a bid to simplify the user experience, per a transcript of the company's Q3 earnings call published by Seeking Alpha.
- Snap CEO Even Spiegel said during the call that 80% of Snap ad impression were delivered programmatically in Q3, indicating how automation efforts gained traction this year, but added automated ad sales also pushed down ad prices, reducing CPMs more than 60% year-over-year. The number of advertisers spending in Snap’s auction increased almost 5x so far in 2017.
- Following the Q3 report, Snap shares fell to a low of $11.78 in after-hours trading before closing in New York at $15.12, per Bloomberg. Snap's public stock offering debuted at $17 per share and hasn't performed to expectations since going public earlier this year. The Bloomberg report pointed out that six months ago analysts expected Snap to reach $1 billion in revenue this year, but have since tempered that down to $871.3 million.
Dive Insight:
The investor market punished Snap for its ongoing user growth issues, but the news wasn't all bad with regard to marketers and their dealings with the platform. The earnings suggest that it is getting easier to buy ads on Snapchat, that pricing is competitive and that users, so far, are reacting well to ads. The announcement of a redesign holds open the possibility that Snapchat could attract a wider audience in the future although the move also could turn away current fans.
Spiegel acknowledged that the substantial drop in average CPMs as Snap transitions its ad business to programmatic auctions means it will have to dramatically increase the number of ad impressions in order to drive revenue growth. Snapchat always had a fear that ads would turn off its younger-skewing user base, but in the call Spiegel said engagement continues to grow “at a meaningful clip” and KPIs like time spent, frequency of use and Snap creation are all increasing while Snap ad impressions are up 400% year-over-year. He added ad load remains very low overall, which indicates Snap has the capacity to increase its ad impressions.
Marketers and investors are paying close attention to Snapchat’s daily active users numbers because this could give an indication of the platform's staying power. In Q3, Snapchat grew at what Spiegel described as “a lower rate than we would like” after adding 4.5 million new users. He partially attributed the paltry figure to Snap’s decision to report daily active users as an average over the entire quarter and said the company had a strong September which was offset by weaker July and August user growth. Snapchat has reached more than 70% of 13-to-34-year-olds in the U.S., France, U.K. and Australia, and its working to reach more of the over-34 age cohort and users in the “rest of the world” markets, Spiegel said.
One of the more interesting announcements in the earnings call is the Snapchat UX redesign. The platform's younger users consider the non-intuitive UX a feature rather than a bug. A redesign might turn off some of Snapchat’s most ardent fans, something Spiegel addressed. However, it could also help make the platform more user-friendly for a wider audience.
“The 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 in the earnings call. “There is a strong likelihood that the redesign of our application will be disruptive to our business in the short term, and we don't yet know how the behavior of our community will change when they begin to use our updated application. We're willing to take that risk for what we believe are substantial long-term benefits to our business.”
