The share price of Snap, the parent company of Snapchat, fell sharply yesterday as the company’s Q3 earnings report showed that revenue had come in way under expectations.
The company had been predicted to earn $237 million in revenue in the quarter, but actual earnings came in at $207.9 million. Snap also posted a big loss of $443 million, including a $40 million charge on unsold Spectacles hardware.
However, average revenue per user was up 39% when compared to Q3 2016.
Adding to the company’s woes, user growth also came under analyst expectations. The amount of daily active users rose from 173 million to 178 million, although expectations had been that it would grow to 181.8 million.
In a media conference call, chief executive Evan Spiegel said that the company would be launching a redesign:
“We are going to make it easier to discover the vast quantity of content on our platform that goes undiscovered or unseen every day.”
The company is having some success with regards to advertising. In the prepared remarks for the Q3 earnings, the company said that it has five times as many advertisers buying ads through its automated auction system then it did at the beginning of 2017. However, Spiegel admitted that the auction has a lower price-point than reserved business due to their being no fixed rate. This suggests that advertisers are getting the same product for a cheaper price when purchasing via auction rather than going through the company’s sales team.
Spiegel thought this was temporary: “As we onboard more advertisers and multiple advertisers compete for the same ad impression, we should see higher pricing.”
Expert comment
Yuval Ben-Itzhak, CEO at Socialbakers says:
“Due to fierce competition from Instagram which is focused on becoming the main photo & video app, like the recently announced ‘superzooming’ and new filters, Snap needs to keep up the pace and act fast. Snapchat needs to demonstrate to marketers how the platform can be used to effectively target, reach, and engage their key audiences, reassuring marketers that they are still a platform that can be used to generate revenue.
“Currently, having a programmatic access (APIs) to the Snap platform requires special permission from Snap. Making the Sânap platform open to everyone via APIs will not just allow technology partners to add additional value, but most importantly it will give marketers âthe opportunity to learn about their audience and post engagements.
“While Snap is leading the way in augmented reality and it has been adding new functionality for marketers with Snap Pixels, their future survival is going to be based on whether they can grow their audience and influence their audience to buy.”
Lance Neuhauser, CEO of marketing-technology company 4C Insights, said:
“Snap is providing a new and innovative way for brands and advertisers to engage with their audiences, and have frankly, only scratched the surface.
“At 4C, we saw a 73% increase in advertising spend on Snapchat in Q3, which indicates the popularity of the platform has found its way into today’s marketing and advertising campaigns. Even further, much of this spend is being concentrated on video, which also shows how users prefer to use and engage with content within the platform.
“All in all, in order to be seen as authentically, and organically as you can as a brand, you have to interact with your customers the way they interact with themselves. Snap provides brands and advertisers a way to immerse themselves into the natural habitats of consumers’ daily lives, and I’m looking forward to see what they come up with next.”
