Snapchat’s parent company, Snap Inc., is set to release its Q1 earnings report this week. This will be the first earnings report since Snap’s IPO and will be telling where its future as a company is concerned. Facing stiff competition from Facebook and Instagram, Snap is approaching a pivotal moment for its survival.
In the year prior to its IPO, Snap saw a total revenue of $404.5 million and a $514.6 million net loss. It wasn’t profitable at the time of its IPO and its profitability isn’t likely to change soon. In fact, a senior equity analyst estimates that in Q1 2017, Snap may have pulled in $142 million in revenue and lost $2.2 billion. It’s worth noting, however, that going public can be a costly endeavor and that Facebook and Twitter posted net losses of $157 million and $511 million respectively in the quarter after their IPOs.
We’ll be watching closely to see what Snap’s Q1 earnings report can tell us about what’s next for Snap, but there are a few key factors affecting Snap’s stock prices and business that marketers should pay attention to as we approach the critical report.
Unlike Facebook and other major social media platforms, Snap doesn’t seem to have one eye on globalization. Much of its user base (75%) comes from North America and Europe, and despite the fact that one of Snapchat’s primary struggles is sustained growth, expanding that user base internationally beyond Europe doesn’t appear to be a priority.
Limiting its user base may lead to further struggles down the road if Snapchat’s growth continues to stagnate. There’s a lot of advertising spending coming from Europe and North America, but Asia accounts for nearly a third of global advertising spending, and that number’s growing. While engaged users in North American and Europe may prove advantageous for brands and marketers (and for Snapchat’s monetization efforts), it’s worth examining whether or not Snap is missing an opportunity.
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Snap may find itself running into a problem with which Twitter is intimately familiar: Monetization. Long struggling to capitalize on its large user base financially, Twitter has been thoroughly lambasted for its failure to turn a profit, primarily due to poor ad performance despite generally positive numbers in daily active users. Snapchat has fewer users than Twitter but may face a similar predicament where effective monetization is concerned.
The vast majority of Snap’s revenue comes from advertising, as is the case with both Facebook and Twitter. The key difference between them is that Facebook has managed to create an advertising ecosystem that’s managed to attract and retain five million advertisers on its platform. Snapchat’s ad platform is less developed and exists largely within Discover, which may prove problematic in its effort to become profitable.
Snapchat’s user base may be much smaller than that of its most immediate competitors, but insights from App Annie suggest that Snapchat is loyal and that large segments of its audience can be found only on Snapchat on any given day.
While we think of today’s social media users as being increasingly cross-platform, App Annie’s data shows that Snapchat users are loyal and that many of them aren’t reachable on other platforms. The data indicates that 35% of Snapchat users in the United States don’t also use Facebook on any given day. That number increases to 46% for Instagram, 81% for Twitter, and a whopping 93% for WhatsApp.
In recent months, Facebook has copied key Snapchat features (like filters and Stories) on Instagram and Facebook. Stories sit at the center of Snapchat’s platform, but as the idea has migrated to other platforms, it’s becoming less of a Snapchat feature and more of a content type. This leaves Snapchat in a clear (if difficult) position: It must offer users something they can’t get anywhere else. Right now, that’s its Discover feature.
Discover is unique to Snapchat (for now), and it’s a huge source of revenue for Snap. By partnering with publishers like Cosmopolitan, Buzzfeed, Mashable, and more, Snapchat can bring users a unique news and content experience through Discover. What’s more, it’s huge for advertisers, who pay a premium for ads placed between segments of a Discover story.
Snap has rebranded as a camera company and released Spectacles, but we don’t know much about its plans to move beyond Snapchat’s current offerings and features. Facebook, on the other hand, has set its sights toward lofty ambitions where camera-focused apps and sharing are concerned. In fact, Facebook CEO Mark Zuckerberg has said that features like Stories and filters are just part of a larger plan.
“[W]e’re not just going to build basic cameras, we’re going to build the first mainstream augmented reality platform,” Zuckerberg said at Facebook’s annual conference in mid-April.
We don’t yet know what’s coming next for Snapchat, but if it fails to grow its user base and come up with new features, it may have a very hard time competing with the draw of mainstream augmented reality for both users and advertisers.