Snap continues to struggle in the wake of Apple’s AppTrackingTransparency (ATT) changes.
The photo messaging app reported $1.3 billion in revenue in its Q4 2022 earnings report on Tuesday, which represented flat YoY growth.
And the revenue picture doesn’t seem to be getting better anytime soon. The company forecast negative growth between -2% and -10% for Q1 2023.
The underwhelming Q4 wrapped up a “challenging” 2022 for Snap, its CEO Evan Spiegel said in his letter to investors.
Total 2022 revenue was $4.6 billion, up 12% YoY. However, that’s a far cry from the 64% YoY growth rate the company reported in 2021.
Spiegel cited two main factors for Snap’s anemic revenue growth over the past year: Apple’s ATT changes and increased competition from TikTok.
Spiegel also said “macroeconomic headwinds” negatively impacted Snap’s revenue growth in 2022. When pressed for specifics by investors, he pointed to a downturn in advertising demand as the culprit. Brand advertising revenue was down 11% YoY for the quarter.
“In general, it seems like our partners are managing their spend very cautiously so they can react quickly to any changes in the environment,” Spiegel said.
The adage that marketers shift spend to performance marketing during an economic downturn seems to be proving true for Snap. While brand spend was down, Snap’s direct response business improved by 4% YoY. Spiegel attributed that uptick to investments the company has made in its direct response platform to offset the downturn in brand advertising.
Over the past year, Snap has prioritized three areas for improving its direct response offering, Spiegel said: investing in measurement, improving engagement and conversion quality, and increasing the volume of those engagements and conversions without sacrificing quality.
But Snap’s focus on improving the value of its direct-response conversions has resulted in a short-term drop in the volume of conversions, Spiegel said.
“Hopefully we can expand that volume over time,” he said. “But that also requires advertisers to adapt. They need to see that increased value show up in their third-party measurement tools, and then increase their bids to reflect that increased value.”
Although Snap’s revenue was flat for Q4, its user engagement ticked up. The company reported 375 million DAUs for the quarter, a 17% YoY increase.
However, average revenue per user (ARPU) for Q4 fell 15% YoY to $3.47.
“We are demand constrained and not supply constrained at the moment,” said Derek Andersen, Snap’s CFO. “We saw 8% impression growth in the most recent quarter, and that translated into a 9% decline in eCPM.”
The biggest drop in ARPU was in the North America market, falling 9% from $9.58 in Q4 2021 to $8.77 in Q4 2022.
ARPU also fell by 6% to $2.38 in the European market and by 2% to $1.10 for the rest of the world.
In an attempt to be less reliant on ad revenue, Snap launched a subscription service, Snapchat+, in August 2022. Snapchat+ paid subscribers totaled more than 2 million in Q4.
Going forward, Snap will continue to prioritize growing its user base. It also highlighted its investments in AR technology, which it sees as a key differentiator among the major social media platforms.
Snap is also optimistic about Spotlight, its TikTok clone. The company began testing Spotlight monetization in Q4, including running pre-roll ads alongside Spotlight content.
“In the testing we’ve seen thus far, the yield we’re getting on ads served in Spotlight is equal to, and in some cases higher than, the yield we’re realizing currently for similar ads elsewhere in the app,” Andersen said.
