Snapchat will overhaul its app to bolster user numbers, as it endures the growing pains of shift to programmatic

The Snapchat-owner reported its latest quarterly earnings this week (November 7) revealing revenues of $208m for the three months to September 30, an increase of 62% year-on-year, although a decrease in its CPMs, plus an overestimation of demand for its Spectacles offering, resulted in a net loss of $443m for the period.

Overheads included a $164m “cost of revenue,” which combined with a 60% year-over-year decrease in CPMs – ushered-in by its shift to programmatic advertising – along with the cost of maintaining its daily active user (DAU) base, up by 4.5 million to 178 million, resulted in ARPU rates of $1.17.

A new-look Snapchat app is on the way

Speaking on the company’s subsequent earnings call, Evan Spiegel, Snap’s chief executive officer, acknowledged that user feedback had demonstrated that “Snapchat is difficult to understand or hard to use” and that a redesign is on the way.

Efforts to redesign Snapchat will be geared towards making it more intuitive, although Spiegel was unable to offer a timeline of the rollout, but he did add that it would include added “monetization opportunities.”

Spiegel did state that Snap wanted to better woo Android users, smartphone users aged over 34 years-old, as well as consumers in “Rest of World markets” (see chart below) and that the team charged with this overhaul was “conceptually studying the evolution of content feeds on mobile.”

He added: “There is a strong likelihood that the redesign of our application will be disruptive to our business in the short term, and we don’t yet know how the behavior of our community will change when they begin to use our updated application. We’re willing to take that risk.”

The shift to programmatic has negatively impacted CPMs

Over 80% of ad impressions on Snapchat are now delivered programmatically, after it introduced its self-serve ad platform, as this has “dramatically reduced pricing” with leadership reporting that adoption of its new offering “surpassed our expectations.”

However, this has decreased CPMs more than 60% year-over-year, with Spiegel reporting that “spending in our auction grew nearly five-times from the from the amount at beginning of the quarter”, and that overall Snap ad impressions were up 400% compared to 12 months ago.

“The initial decline in average CPMs during our transition to the auction has meant that the majority of our revenue growth has come from a dramatic increase in impressions,” added Spiegel.

Although he did add that “overall ad load remains very low, and we will continue to monitor user engagement as ad load increases over time.”

Snap is trying to woo SMBs to bolster bid density

Given the company’s shift to programmatic advertising, Snap is now attempting to bolster both its user base, and the number of advertisers using the platform, a dual strategy that is seeing it attempt to entice ad spend from the SMB sector.

This was demonstrated with moves such as its latest pixel tracking introduction, so advertisers can now optimize campaigns with specified direct response objectives. This includes objectives such as driving app installs, or video views, with Imran Khan, Snap, chief strategy officer telling analysts the introduction of the auction model to its platform had reduced its price entry point by “three orders of magnitude.”

He added: “Today over 80% of impressions are being delivered programmatically, from 60% since last quarter. However we had a lower price point than our reserve business where there is no fixed rate card. While this diminishes revenue in the short term, it builds the foundation for more and more sustainable revenue.”

According to Snap’s logic, as a greater number of advertisers compete for ad impressions its CPM average should increase in the longer term, with Khan claiming that the total number of advertisers buying media using its auction pricing model was up by five-times compared to the start of the third quarter.

When asked if this shift towards programmatic advertising will include opening up to demand from third-party demand-side platforms, ie reducing the reliance on its self-serve advertising tool, Khan claimed that it would maintain its current strategy, citing “data leakage” as a potential concern.

‘Snap’s stock was overpriced to begin with’

Snapchat’s share price slumped in the immediate aftermath of the call, with investors apparently disappointed in both its DAU-count, as well as a revenue haul that fell short of earlier expectations.

Speaking with The Drum, Brian Wieser, an analyst specializing in media stocks at Pivotal Research, said that while Snap’s performance over the quarter was “a little soft”, he believed that this was a part of market rationalization.

“This was not positive quarter, but not necessarily the end of the world,” he said. “Everyone knew the stock was over-priced to begin with.”

Source: The Drum