Snap’s Revenue And DAUs Show Healthy Growth, But Ad Rates Are Stuck In Neutral

Snap outpaced estimates for its quarterly earnings released Tuesday, bringing in $446 million, a 50% jump compared to last year.

But the company has a long way to go before it’s in the black. Snap’s net losses in Q3 were $227 million, though that’s a $98 million improvement from Q3 2018.

Snapchat’s daily active users (DAU) also grew steadily for a third straight quarter. This was a critical test after last year, when an app redesign spurred a decline in overall user numbers. DAUs climbed to 210 million, up 7 million from last quarter and 26 million from Q3 2018.

Snap emerged from the redesign with a stronger platform and business model, said CEO Evan Spiegel. For instance, the new app UI and content investments mean users see an infinite scroll of Stories posts and videos by Snapchat publishing partners, he said. That boosts engagement metrics and reduces churn because Snapchat’s ad load is relatively low.

The average Snapchat user now interacts with one of its augmented reality features 30 times per day, which one investor noted is up from 25 last year, when the company last cited the metric. More than 100 Discover channels now boast a monthly audience of at least 10 million.

Those content growth numbers are encouraging, but investors pressed for ways for Snapchat to make gains on average revenue per user (ARPU). The new app layout and DAU growth means the impression count is increasing despite the low ad load, but its ad platform needs more demand to wring dollars from its supply.

“We continue to see increasing demand as our No. 1 priority,” said Jeremi Gorman, Snap’s chief business officer.

Snapchat did see strong ARPU growth in North America, where it earned $3.75 per user, compared to Q4 last year, the highest-earning quarter, when its ARPU was $3.38. That’s still a distant runner-up to Facebook, which made $33.27 per user in North America last quarter.

Spiegel said the two biggest short-term priorities – its augmented reality technology and content investments – are both tied to improving user monetization.

Overall time spent per user is increasing but ad rates aren’t.

Gorman said the company has been “relentless” in its effort to demonstrate value to advertisers, including investing in tech such as its measurement pixel and self-serve ad platform. She said Snapchat will also invest more in B2B advertising, trade shows and earned media as the company makes its case to the ad industry that it can deliver hard-to-reach young audiences and ROI.

Snapchat’s reorg at the beginning of the year, when it reoriented its sales teams by industry vertical, is also paying dividends after a tumultuous start, Gorman said. The business can now strategically ramp up its sales and service by region and category as it adjusts to seasonal changes or elevated demand, such as during breaking news or live events.

Snap’s advertising reorg has been in place longest in the United States, Gorman said, which is why North American ARPU growth outpaced global rates.

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