During Snap’s Investor Day event on Thursday, the company reiterated its dedication to augmented reality (AR), expressed efforts to enhance its direct-response advertising business, and revealed notable growth in its user base. Evan Spiegel, the CEO and co-founder, stated that Snapchat’s monthly active users have increased to 750 million from 600 million in April 2022, with 20% of them located in North America, equivalent to over 150 million users.
Despite Snap’s strong user growth, the company faces a challenging outlook as it emerges from a difficult Q4. Snap cited a harsh economic climate, obstacles posed by Apple’s privacy-related modifications, and intensifying competition as major hurdles to overcome.
Snap is expanding its efforts to aid direct-response advertisers, which make up approximately 66% of its revenue, through various means, such as:
- Enhancing advertisers’ feedback on their ads through the use of tools like
- Conversions API and data clean rooms Allocating resources to Estimated Conversions to improve the modeling of ad performance
- Placing a greater emphasis on click-through conversions to enhance the quality of results.
During the investors’ meeting, there were inquiries regarding Snap’s heavy dependence on AR, which several advertisers still perceive as experimental. Spiegel reiterated that AR is crucial to the company’s future and expressed his ambition to encourage advertisers to adopt AR continually instead of sporadically.
COO Jerry Hunter revealed that Snap generates an average annual revenue of $13 per user globally, which is significantly lower than Facebook’s $59. The contrast is even more pronounced in North America, where Facebook’s ARPU of $277 is over eight times larger than Snap’s $33. Meta’s powerful direct-response advertising products are a crucial factor, highlighting the daunting challenge that lies ahead for Snap.
In our view, if Snap can successfully implement its direct-response solutions, it could help advertisers achieve a higher ROI and lower cost per conversion. While AR is Snap’s defining characteristic, the company may find itself in a comparable situation to Meta, which had to shift its focus away from metaverse initiatives to tackle immediate challenges. If the ad market recovery doesn’t materialize as quickly as Snap desires, it may need to make similar adjustments.