Snap revenue surges 52% as direct response, AR ad offerings pay out during pandemic

Brief:

Snap's revenue jumped 52% year-over-year to $678.7 million in the third quarter, the fastest growth the Snapchat owner has experienced in three years, according to earnings released Tuesday. Its photo-sharing app added 11 million users over the period, driving an 18% yearly gain in daily active users to 249 million.
Snapchat reaches more than 75% of people ages 13 to 34 in the U.S., U.K. and France, giving it a strong foothold with Generation Z and millennial consumers, Jeremi Gorman, chief business officer of Snap, said in prepared remarks. The average number of photos that people shared in the app grew 25% from a year earlier, while the time spent watching video programming jumped 50%, the company said.
Snap's revenue surged last quarter as the company expanded the user base for Snapchat and advertisers boosted their spending to reach audiences who spent more time on mobile devices during the pandemic.

Insight:

Snap's blockbuster Q3 revenue growth, which helped cut losses by 12% to $199.8 million, indicates the social media company has bounced back strongly after the coronavirus pandemic dealt a blow earlier in the year. At the same time, Snap's bids at rounding out its advertising offerings, including through deeper investments in areas like augmented reality (AR) and direct-response ads, have appeared to pay off at a critical time.

The photo-sharing app purveyor's yearly revenue growth slowed to 17% in Q2 from 44% in Q1 as the health crisis led many advertisers to pause or cut back on their media spending. But as the amount of time consumers spent on mobile devices increased, so did engagement with Snapchat: The average number of photos that people shared through the service in Q3 grew 25% from a year earlier, while the time spent watching video programming jumped 50%. That momentum bodes well for the social media industry broadly, as rivals such as Facebook, Twitter and Pinterest prepare to report their results before the end of the month.

"Snap's outperformance is due to its rising stature as a direct response advertising platform and also to its unique ad offerings, such as augmented reality advertising and ads in video Shows," Debra Aho Williamson, principal analyst at eMarketer, said in emailed comments. "The company has also benefited from an overall increase in ecommerce-related ad spending in digital media."

Snap also may have benefited from the advertiser boycott of Facebook in July, when several civil rights groups urged marketers to withdraw from the social network to protest its hate speech policies. Brands from Adidas to Verizon joined the boycott, while Walmart, McDonald's and Kellogg's were among the companies that quietly stopped advertising on Facebook, according to an independent analysis.

"As brands and other organizations used this period of uncertainty as an opportunity to evaluate their advertising spend, we saw many brands look to align their marketing efforts with platforms who share their corporate values," Snap's Gorman said in prepared remarks. "Our sales teams were able to hold many productive C-level conversations to discuss our brand safety positioning and privacy-by-design principles."

Snap also touted the strength of AR experiences as a key source of revenue, as brands sought to engage consumers who were less likely to shop at retail stores because of safety concerns. During the quarter, Champs Sports became the first sportswear retailer to offer virtual try-ons of sneakers using a new Snapchat technology. In August, Hoka One One, the maker of athletic apparel owned by Deckers Brands, offered a mobile shopping experience that included an AR pop-up store and virtual try-on of running shoes. Other marketers, including Clearly, Essie, Kohl's, Levi's, Jordan Brand and Sally Hansen, developed virtual try-on experiences on Snapchat, per its quarterly report.

At the same time, Snap is experimenting with more geolocated AR offerings, which could yield more growth once consumers are more comfortable traveling. Snapchat this month rolled out a previously announced feature to create and share persistent AR content on a large scale. In an early test, the geotargeted Local Lens called City Painter let Snapchat users cover an area of London with 3D virtual murals that were only visible in the app. It's conceivable that Snapchat can monetize such activations with advertisers that sponsor geofenced virtual content to engage mobile users.

Other areas that received a shoutout in the earnings: Snap's "mix and match" fashion collection for Bitmoji, which lets Snapchat users create personal avatars to represent themselves in the app. The company said millions of Snapchat users have dressed their Bitmoji in virtual Ralph Lauren clothing after the fashion retailer introduced the collection in August. Snap followed that rollout with the addition of Bijmoji clothing from Nike's Jordan Brand last month. The Bitmoji fashion collections are a sign of how marketers are seeking other ways to promote their brands through engaging digital experiences amid the pandemic's disruptions.