Snapchat saw promising gains for its advertising platform in earnings reported Thursday.
The company reported a record-high $298 million in revenue, with 43% year-over-year growth, and quarterly jumps in average revenue per user (ARPU) from $2.21 to $2.62 in North America and $0.66 to $0.85 in Europe.
But Snapchat is still bleeding daily active users (DAUs) since an app redesign early this year. Snap expects DAUs to drop again in the fourth quarter.
CEO Evan Spiegel insists the redesign was the right choice.
“It’s sort of like how the programmatic transition was difficult at first but the right thing in the long term,” Spiegel said, claiming content and inventory quality improved because of the redesign.
While Spiegel told employees in a letter that he expects DAUs to grow next year, he told investors that’s a “stretch goal” and not actual guidance.
Speaking of programmatic, the transition is paying off now and Spiegel said Snapchat’s self-serve ad business is up to 85% of revenue this quarter from 25% a year ago.
Global ARPUs surpassed the previous high of $1.53 recorded in the final quarter last year before Snapchat’s programmatic reset caused CPMs to plummet.
The company’s tracking pixel has also gained steam, which accelerates the advertising platform. Snapchat’s pixel tracked 230 million purchase events in Q3 after seeing only 70 million the quarter before, which leads to better lookalike audiences, measurement and CPMs.
Onboarding new advertisers and improving the ad platform performance will increase revenue for Snapchat even if users tail off. But to be sustainable long-term, the company needs user growth to return.
Snapchat has a two-pronged strategy to return to user growth, Spiegel said.
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In the US and Europe, Snapchat has a “marketing and communications challenge” to grow out of its core user base of 13- to 34-year-olds, he said. In other global markets, it faces a technical challenge to decrease app bandwidth, since people won’t download the app if its heavy visuals and AR features eat up their data plan.
Broadcasters, streaming services and digital media companies have tried to figure out how mobile viewership can achieve better quality, Spiegel said. “But we’re finding out what really resonates.”
