Narrative: Snapchat is Maturing
Each narrative page (like this) has a page describing and evaluating the narrative, followed by all the posts on the site tagged with that narrative. Scroll down beyond the introduction to see the posts.
Narrative: Snapchat is Maturing (Jan 28, 2017)
This content is restricted to paid subscribers to the Tech Narratives service. You can sign up on this page for a 30-day free trial, which will give you access to all the content on the site including the daily comments, narrative essays, subscriber forums, and other restricted features. If you’re already a subscriber, you can sign in using the link below.
If you’re already a member, you can sign in here.
Snap Cuts Jobs, Changes Management for Hardware Unit (Sep 21, 2017)
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.
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.