Snap’s Got A Plan To Juice ARPU, Which Is Growing But Still Lags Its Peers

Snap is super focused on improving its average revenue per user (ARPU) this year.

Snap’s ARPU for North America is growing – up 31% year over year (YoY) in the fourth quarter of 2019 – but at $4.42, it still significantly lags Facebook’s, which topped $41 in Q4.

On Tuesday, chief business officer Jeremi Gorman outlined Snap’s three-pronged plan to improve its ARPU during the company’s Q4 2019 earnings call.

First, Snap will improve its measurement, ranking and optimization capabilities for advertisers. Second, it will focus on building out its sales and marketing teams globally. And third, it's creating more video and AR-centric ad experiences that are tied to performance.

These three priorities combined with Snap’s growing audience – daily active users were 218 million in Q4, a 17% YoY increase – will help put Snap “in a position to meaningfully close the ARPU gap relative to our peers,” Gorman said.

Snap CFO Derek Andersen pointed to Twitter as an example. Twitter doesn’t report ARPU, although investment firm Canaccord Genuity pegged the metric at approximately $5.68 for Q3 2019. (Twitter reports its full year 2019 earnings on Thursday.)

In many ways, it’s unfair to compare Snap to Facebook in terms of ARPU, user count, revenue or, frankly, anything. Facebook is a behemoth, with a paid advertiser base of 8 million.

Snap doesn’t share how many advertisers it’s got, although Gorman said Snap hit its “highest number of active advertisers ever” in Q4.

“We do have fewer that 8 million advertisers but a lot of headroom to grow, and we have the supply to do it and the inventory to do it,” she said. “[And that is] where we are myopically focused on the sales team.”

Even so, like Twitter, Snap remains more demand-constrained than supply-constrained, which explains the hyperfocus on onboarding new advertisers faster.

Gorman acknowledged that growing Snap’s advertiser count is “the single best way to grow demand,” and growing demand would obviously help boost ARPU.

Demand growth would also boost CPMs and increase the number of ads available for each impression, she said, which should improve relevance per impression and yield better ROI, even at increased prices.

Snap’s 2019 revenue was $1.7 billion, and its Q4 revenue clocked in at $561 million, a 44% YoY increase. The company’s stock fell more than 10% in after-hours trading, however, because it narrowly missed Wall Street’s quarterly revenue expectations of $563 million.

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