Company / division: Snap
Snapchat has added one of its biggest new features in recent memory with the addition of Context Cards, which will be reached through a swipe up on a Snap tied to a specific location. The Context Cards will offer various additional details about the place, and also provide links to ride sharing and restaurant booking services as well as information like address, reviews, and so on. This is yet another move by Snapchat beyond its original limitations, along with the addition a while back of outbound linking from Snaps. What both of those features offer is a way to add additional detail and context to a Snap beyond the limited photo/video formats Snapchat has supported natively. It’s also an interesting alternative to voice assistants, bots, and other ways to add context to what’s currently happening on screen without the user having to type text into a search box. The feature certainly lends itself well to monetization opportunities in future too, whether advertising or revenue sharing with the initial or additional partners. However, as with other Snapchat features, it doesn’t feel particularly tough for others to emulate if successful.
Also worth noting, briefly, is the fact that Evan Spiegel, who has rarely done press interviews, did not one but two as part of the launch of this feature, as a sort of follow-on to his recent comments that he realizes he needs to do more public communication now that Snap is a public company.
eMarketer, a research firm which offers projections of ad revenue by company, has lowered its 2017 US forecast for Snapchat for the second time this year. It’s now projecting a total of $642m for the year, down from the most recent forecast of $770m, and the original forecast of $800m. Projecting Snap’s ad revenue is difficult for several reasons, not least that the company itself doesn’t provide any guidance, but also because its shift to serious revenue generation began so recently that there’s no reliable growth rate to base future projections on – year on year percentage growth has slowed from over 400% to 286% to 153% in the last three quarters even as dollar growth has been pretty strong. Snap’s North American revenue in the first half of 2017 was $277 million, meaning that eMarketer is projecting roughly 30-40% growth in the second half over the first half. That’s fairly modest, but as we’ve seen recently Snapchat’s user growth has been modest too, and although ARPU is rising fast, it may not continue to do so at the same pace. There’s growing skepticism about Snap’s business overall, and this report feeds into that overall skepticism, but I suspect it may be a little too pessimistic based on Snap’s strong second-half revenue performance last year. But we’ll know soon enough what Q3 looks like, at least.
via Business Insider
Snap Cuts Jobs, Changes Management for Hardware Unit (Sep 21, 2017)
Snap Inc has apparently cut about a dozen jobs and shuffled management in its hardware unit in recent weeks, according to Bloomberg. The only hardware this group has shipped so far are the Spectacles camera-glasses launched late last year, which had sold less than 150,000 units as of the end of June by my estimates, and accounted for less than 5% of revenue during that time. Hardware may still end up being an important future revenue stream for the company, but that future certainly isn’t here yet, even though there have been reports about drones and other hardware in the works. Eliminating marketing people from the group suggests either that Snap was unhappy with their work or that it won’t have new hardware to market anytime soon (or both), which reinforces the sense that a meaningful hardware revenue stream is still way off. To put the job cuts in context, though, 12 people represent a tiny fraction of Snap’s overall employee base, which sat at 2600 at the end of June and has likely risen significantly since then (it was under 2000 at the beginning of the year). I argued at the time of the launch that the vending-machine-based scarcity marketing for Spectacles was a very clever way to get far more attention than raw demand itself would warrant, but it never led to much more actual demand.
Business Insider reported a few weeks back that Snapchat was starting to approach college newspapers about contributing content to its Discover tab, and now the company has made it official. Critically, Snapchat will run ads in those Stories, which will allow the newspapers to make some money from the partnership, so this should be something of a win-win for both sides. As I mentioned in my first comment on this (linked above), Snapchat is here going in the opposite direction from Facebook, which started out college campus-based and expanded from there, but the college age audience is clearly a big part of Snapchat’s target demographic, so it makes a ton of sense to provide increased localization and more content to keep users in the app longer (and see more ads). I’m very curious, though, to see how effectively newspapers make the transition to the format required in the Discover tab – I’m guessing most of the contributors will at least be familiar with the form, but it’s very different from writing articles.
Facebook and Google Dominate Top 10 US Apps List (Aug 24, 2017)
Analyst firm eMarketer has revised its usage forecasts for Facebook, Instagram and Snapchat for the coming year, and although there’s lots of data there, the point the media has latched onto is that it’s predicting use of the core Facebook app among US teens will fall this year. Though I have to imagine eMarketer is basing all this on some kind of survey of teens (notoriously difficult to do), there’s no mention of any such survey in the article from eMarketer, so I’m curious to know precisely what the foundation is, especially given that falling Facebook use by teens has been talked about for years but never seems to have materialized in a discernible way in Facebook’s reporting. None of this, though, is all that surprising, given that Snapchat and Instagram between them seem to have a lock on teens’ social media use, both driven by the increasingly raw and personal sharing these platforms enable in contrast to the broadcast nature of most Facebook sharing. While Facebook has steadily embraced its identity as a time sink filled with content loosely connected to people you know, these other platforms continue to major on true social interactions and therefore are more appealing to those at a stage of life where that’s the most important aspect of social media. Without Instagram, Facebook would potentially be staring a massive liability in the face at this point given that all its organic efforts to compete with Snapchat have crashed and burned, but with it, the company has managed to participate in rather than merely suffer from this trend among teens. And it’s now seeing the upside at least as much as the downside, with several times the user base of Snapchat overall and nearly equally high engagement. As such, I’m not sure any of these needs to be a worry for Facebook even if it’s true, as long as the trend doesn’t spread to older age groups and lead to broader disengagement from Facebook, and as long as Instagram is able to continue to capture its share of teen social media use.
Snap Inc reported earnings for Q2 2017 this afternoon, and it missed analyst consensus estimates pretty much across the board, with lower user growth, ARPU, and therefore revenue, as well as EPS, than expected. Snap’s user growth sequentially was 7 million, a little above its Q4 2016 number but below every other quarter’s growth for the last two years. Interestingly, in a reversal of the recent trend from Facebook, it saw better growth in North America, where its ARPU potential is much higher (currently 5x Europe and 7x Rest of World) but costs to serve are more or less the same than in its two other regions. But if user growth is going to remain slow, ARPU really has to grow rapidly, and it’s not yet seeing the kind of ramp it needs in that trajectory to justify rising expectations of its future performance. Though it saw 60% of its recent ad impressions generated through its self-serve and automated (API) platforms, the increased inventory made available through those platforms has generated lower prices per ad, so even though impressions went up quite a bit thanks to increased time spent and modest user growth, that offset it somewhat.
Management commentary on the call was mostly focused on the new creative tools being made available to users, which have historically driven increased engagement, as well as the evolving ad platform, which is the other major component to driving ARPU up. But the evidence from the Q2 reported numbers suggests neither of these is dramatically changing the trajectory from prior quarters. There is still tons of headroom in ARPU – Facebook’s global ad ARPU is over four times Snap’s, while its North American ARPU is roughly ten times as high – but Snap is a long way from reaching that level yet, with relatively modest increases in North America in the quarter and better growth overseas. My basic thesis on Snap remains the same: it’s a platform with a slow-growing and smallish (relative to the ad giants) base of highly-engaged users heavily skewed toward particular demographics. That will continue to be attractive to those looking to reach those demographics, but will continue to fall short of the appeal of the much bigger audiences and more sophisticated ad tools available at Google and Facebook. I don’t see any of that changing soon, which means Snap is best seen as its own animal, at similar scale to Twitter (though that scale is measured differently) and with some of the same problems. In other Snap news today, Mashable’s Kerry Flynn reports that it has apparently acquired selfie drone company Zero Zero Robotics. There was no mention of this on the call, but if I heard correctly management did mention roughly $200 million in acquisition costs in the quarter, which would gel with this reporting.
Snapchat Launches Daily NBC News Show (Jul 19, 2017)
Weekly Narrative Video – Snapchat is Maturing (Jul 15, 2017)
This past week’s narrative video is on the Snapchat is Maturing narrative, which feels very relevant as Snap Inc’s share price drops below the IPO price and questions continue to arise about its long-term potential. As usual, I’ve updated the accompanying essay to reflect what’s happened since I first wrote it six months ago too. Subscribers can watch the video on the narrative page here as always, and if you’re not yet a subscriber you can sign up for a 30-day free trial here and get access too.
Business Insider reports that Snapchat is looking to beef up its ad tech capabilities and has had discussions with AdRoll as a possible candidate, though those talks seem to have ended at this point. This goes to the heart of one of the big weaknesses Snapchat still has as an advertising platform, namely its inability to give advertisers the insights they want into how their ads are performing or the impact they’re having. That, combined with the lack of user growth, means Snap’s future growth prospects are challenged, and that in turn explains the recent hit to the stock price. The right acquisition (or several) in this space would help change that, but many of the best assets in the market have long since been snapped up (or developed internally) by the major players, so the pickings will be slim and the benefits of an acquisition less than they might once have been.
via Business Insider