Duopoly Safe For Now As Snap's First Earnings Disappoint

Snap reported earnings for the first time on Wednesday, and based on the results, Facebook CEO Mark Zuckerberg must be feeling pretty smug.

Snap reported Q1 revenue of $150 million, a 286% increase from this time last year but below the expected $158 million. Net losses totaled $2.2 billion.

Daily active users (DAUs) for the quarter grew 36% year-over-year from 122 million in Q1 2016 to 166 million in Q1 2017. By comparison, the much larger and more mature Facebook saw mobile DAUs grow 23% year over year.

Sequentially, DAUs increased just 5% from 158 million to 166 million. Net additional users increased 54% worldwide since Q4 last year, said Snap founder and CEO Evan Spiegel.

Snap is going to need to maintain high user growth rates, and it plans to grow DAUs by lowering the barrier to entry for creation through new features, such as augmented reality lenses. Such improvements on the Android version of its app helped Snap increase net additional Android users by 30%.

Snap also hopes to enjoy a bump in DAUs from its push into scripted original series, which are so far drawing in audiences of more than 8 million, Spiegel said.

But Snap is still in the shadow of Facebook, which has seen major traction with users and advertisers by ripping off Snapchat’s core features. Last month, Instagram stories surpassed Snapchat stories with 200 million users.

While Spiegel acknowledged Snap has to educate advertisers on the benefits of its platform, he claimed he isn’t worried about Facebook.

“If you want to be a creative company, you have to be comfortable and enjoy the fact that people are going to copy your products if you make great stuff,” he said. “At the end of the day, just because Yahoo has a search box, it doesn’t mean they’re Google.”

Despite the disappointing results, Snap’s nascent ad business is seeing traction via its programmatic API, which is now live in 24 countries. Twenty percent of Snap Ads, or vertical video units that play between user stories and on Discover, were bought programmatically this quarter, said Chief Strategy Officer Imran Kahn.

To grow revenues, Snap will focus on widening its programmatic business to all advertisers – large and small – via a self-serve programmatic tool released last week.

Snap is also pushing toward direct-response dollars with features that let users watch content or buy items.

On average, users are spending 30 minutes and creating 3 billion snaps per day on Snapchat. The platform reaches 45% of the coveted 18- to 34-year-old demographic daily, according to data from Nielsen. Eighty percent of the platform's DAUs fall into the demographic.

Average revenue per user on Snap was $0.90. In comparison, Facebook’s average revenue per user is $20.

Snap’s stock dropped nearly 20% after its earnings were released.

 

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