top of page
  • Writer's pictureCharlie Nave

Snapchat's Second Coming

Snap shares rallied by 30% last week following a quite impressive set of quarterly results. This highlights that the once ‘down and out’ social media platform is regaining ground with a suite of innovative tools (Snap Originals, Lenses, Geofilters, Games) designed to close the gap on ad revenue and user engagement.

Source: Variety


Towards the end of 2018 Snap Inc was seen as a bit of a has-been. Average Daily Active Users (DAU) of 186 million were flatlining with zero year-on-year (YoY) growth, executives were flying out the door with 15 exec departures within two years and there was a battle to remain relevant with a demographic churning to more engaging and user-friendly platforms like Instagram and TikTok.

By October 2018, two months after going live in the US, TikTok had become the most downloaded app in the country……meanwhile, Snap was a shadow of its former self, with a share price down to $5 in late-2018 from highs of $24 at the time of its 2017 listing.

But….after a recent earnings beat, strengthened financials and what appears to be some strategic method to the madness….Snap certainly looks like it’s back, and positioned to genuinely challenge Facebook, Twitter, TikTok and others (i.e. Netflix) in an increasingly competitive market for user engagement and ad revenue. There are now 229 million DAUs (up 20% YoY), quarterly revenues up 44% YoY to $462 million — converting to a 20% increase in Average Revenue Per User (ARPU) to $2.02.

Whatsmore, Free Cash Flow (FCF) almost tipped into positive territory — just -$4.6 million (vs -$78m one year prior). Perhaps with a lot of thanks going to new leadership and a renewed leadership style from founder Evan Spiegel.

However, despite the jump in ARPU there is still some way to go to catch the leaders. Facebook (Instagram, Facebook, Whatsapp), have ~1.6 billion DAUs with an ARPU of $8.52 – 4x Snap. Below you can see the significant gap between profitability per active user, reflected as ARPU, of leaders like Facebook and Twitter vs the challengers (nb. Pinterest only public Monthly Active Users — not daily active).

The challenges for Snap is how they close the gap with their competitors and continue to attract, retain and engage their user base (~90% being 13–24)….and how do they ramp up ad revenue without polarising their user base.

Let’s now take a look at some of the products and features that are going to help them close this gap.

Sponsored AR Lenses

AR lenses are what kicked it all off for Snap and their sponsored lenses will only continue to drive more revenue.

For the uninitiated, brands like Taco Bell, Kraft, Gatorade and movie franchises like X-Men (Walt Disney Company) utilise the lens studio to create their own targeted lenses. This is a highly unique marketing proposition and one which has a great ability to trigger viral campaigns and generate incredible (and active) user engagement.

Let’s look back at the Gatorade campaign (second from left below). Launched at the Super Bowl a few years ago, the filter (where you could pour a virtual bucket of Gatorade over your head) received 165m views — without any paid media to promote it.

Source: Conviva (left to right — X-Men, Gatorade, Taco Bell, Kraft)

At present, over 75% of DAUs engage with AR lenses each day. That’s around 172 million people. Furthermore, via Lens Studio over 900k lenses have now been created by the community — that’s a massive jump of ~30% vs last quarter.

To help build on this momentum, Snap recently launched the lens web builder — a feature to enable more brands to more easily access, build and manage a lens campaign.

In addition to this, Snap announced a 30x increase in the downloads of their Snap Camera — a desktop app enabling the use of filters across platforms like Zoom, Skype, YouTube and Twitch.

Snap Originals

Snapchat’s ‘Discover’ is their content section; enabling users to scroll through friend stories, publisher stories (i.e. Mashable, NatGeo, Daily Mail), TV shows (from the likes of E! News, Vice, Billboard).

What’s of most interest here is the evolution of the Netflix-style Snap Originals series including the recently launched “Will from Home” (trailer below). This series has had 15 million views of its first 3 episodes. Another series, “Nikita Unfiltered”, received 20 million views since its launch in March. To date, there are around 95 original shows in this hugely condensed format (each episode within the show is no more than a few minutes long).

All of this has contributed to show viewership doubling year-on-year.

For comparison, Netflix Originals’ The Witcher received 72m views, Stranger Things (S3) 64 million and Tiger King, 64 million views (at time of writing). Still, a substantial gap but, bang for the buck (production cost/time/effort vs return); Snap Originals looks like it’s onto something. Especially in times of covid19, Snap is able to adapt production to keep series on schedule (i.e. the ‘Good Luck America’ series has pivoted to be shot from ‘home’). These series also provide advertisers with a much more targeted opportunity.

Finally, it’s far easier, for a demographic still living at home with their parents, to binge via Snap than Netflix (i.e. minimal parental control). Good for snapperchatters, good for advertisers, good for Snapchat ……..not so good for parents.

These are the most relevant opportunities for advertisers at present, however, going forward there will also continue to be a substantial opportunity through other formats such as:


Geofilters provide hospitality, tourism, events organisations, retailers etc to unlock AR filters based on geographic location. For example, unlocking a Clippers or Oilers filter on game day, a city filter (i.e. Sydney/LA/Paris) to promote tourism or a Starbucks filter during a store launch.

This will obviously take a hit during covid19 but, in the aftermath, expect this format to make a big comeback as advertisers look for more cost-effective and targeted solutions to engage customers with their brand

Source: Snap Inc (geofilter dashboard)

Snappables (Games)

In the current climate, demand for Snapchat games is surging. Five new games were launched in the last quarter (the most of any period) with a particular surge in ‘Bitmoji’ games. Think of Apple’s Memoji (personalised emoji) crossed with online gaming. Popular titles include Bitmoji Tennis and Bitmoji Party (below):

What makes this even more interesting is how games can create a phenomenally unique and engaging marketing campaign.

A number of companies have developed their own games to engage more customers — companies like Bud, Dunkin’, PepsiCo and King Digital (creator of Candy Crush).

Most recently, Adidas launched a game on Snap called “Baseball’s Next Level” — an 8-bit old-school baseball game where you play Adidas MLB players and have the opportunity to buy 8-Bit branded cleats (footwear) directly through the game (below).

Source: eSuite

This is a sort of engagement that is extremely unique to Snap and allows opportunities for various other marketing overlaps.

For example, PepsiCo, in the (2017) launch of ‘Pepsi Fire’ developed unique lenses, games and geofilters for consumers to win gaming consoles and entertainment experiences.

In summary, what was a ‘down and out’ platform is in the midst of a second coming. The question is whether the platform(s) they are developing will continue to engage and retain and incredibly hard to please and fickle demographic and what will be the impact on ad spent in the current climate.

I believe Snap’s current and future pipeline (Snappables, Lenses, Geofilters, Orignal Series etc.) will be enough to turn the tide and see Snap slowly close the gap with competitors.

Whatsmore, I believe these tools will attract more advertisers (even in a post covid19 world). Ad spend will undoubtedly take a hit, however, marketing teams will look for the most effective and targeted platforms to engage with consumers and this is where Snap stand to benefit.

“If” Snap does continue the momentum, a 20% YoY growth rate in DAU (in line with recent results) could see ~275m users this time next year. Furthermore, assuming an ARPU of ~$2.50, quarterly revenue could quite easily hit US$700m in 1Q21, putting it well on track for circa US$2.8 -$3 billion revenues in 2021.

27 views0 comments

Recent Posts

See All


bottom of page