- Snap grew revenue by 6% year-on-year to $1.13 billion in the third quarter, slight gains that reflect ongoing macroeconomic and privacy-related challenges, according to an earnings statement.
- Even industry sectors seeing growth at the moment are reassessing their marketing strategies, the Snapchat owner said in an investor letter, which has led them to cull brand-oriented advertising and resulted in lower bids per auction on its platform.
- Snap said that direct-response advertising formats are the most “defensible” investment for marketers in a down period, and it expects the category will scale significantly over the long term. Still, the short-term picture isn’t pretty, as Snap expects flat growth for the crucial fourth quarter and holiday window.
A needed turnaround for Snap appears a long way off as a dour economy and ongoing headwinds tied to Apple’s privacy changes roil the business. In its letter to investors, the social media firm gave more color on the state of advertiser demand, with direct-response formats growing “modestly faster” than other areas in Q3 while brand-based advertising saw declines.
The latter part of that assessment poses a problem, as Snap noted that “Q4 has historically been relatively more dependent on brand-oriented advertising revenue.” The period is an important one for platforms and publishers because it contains the holiday season, when marketers ramp up promotional activity. This year could be relatively anemic given economic troubles that Snap indicated are impacting campaign budgets even in categories with sturdier top-line growth.
Snap said it has seen revenue growth up roughly 9% YoY so far in Q4, but declined to provide financial guidance for the period. It added that it’s “highly likely” a revenue growth deceleration will continue in the months ahead.
The Snapchat owner has pared down its focus in light of these challenges after rapidly expanding earlier in the pandemic, when advertiser demand was red hot. In late August, the company enacted a restructuring plan that involved laying off 20% of employees and shuttering a number of experimental bets, including original shows and a recently launched flying selfie drone. Snap is now prioritizing three areas to right the ship: user growth, revenue growth and augmented reality, a historic strength.
There are some bright spots on the user front. Snapchat’s daily active users (DAUs), a common audience measure for social media platforms, were up 19% YoY in Q3 to 363 million. The argument to investors is that keeping these people hooked for the long term will pay dividends once the ad market recovers.
To attract more eyeballs, Snap is chasing the success of rival TikTok through a lookalike feature called Spotlight. Time spent watching the short-form video portal was up 55% YoY in Q3, Snap said, while monthly active users on the feature surpassed 300 million. For Q4, Snap is expanding ad tests for Spotlight, which is comparatively immature in regards to monetization versus legacy formats like Stories, which are struggling with engagement. .