In Its First Earnings Report, Snap Says It Made $150 Million During the Year's First Quarter

Snap reported its much-anticipated earnings for the first time today and offered investors and advertisers a look under the hood of its current business and long-term strategy. Snap reported $149.6 million in revenue during the first quarter, down slightly from Wall Street expectations of $159 million. To compare, Snap made $165.7 million in revenue during the fourth quarter of 2016 with $145.4 million of that coming from the U.S. Snap pulled in $404.5 million in total advertising revenue in 2016. While most of that money comes from advertising, $8.3 million in revenue came from "other" sources, primarily Snap's vide0-recording Spectacles glasses. Snap also said it has 166 million daily active users—up from 158 million at the end of 2016—who spend more than 30 minutes with the app every day. The growth rate is a slight uptick from last year—between September and December, Snapchat had 153 million daily active users. According to CEO and co-founder Evan Spiegel, 20 percent of Snap Ads impressions during the first quarter came from its programmatic-like API (application programming interface). “Automating our ads platform means that advertisers get better pricing, our community sees better ads and we are able to make more money per impression,” Spiegel said during a call with investors. “Our progress this quarter should provide a strong foundation as we continue to build our business.” Android devices in particular were a big driver of growth, Spiegel said. “We were able to more than double the number of net additional users coming from Android devices compared to last quarter—Android users accounted for over 30 percent of net additional users this quarter," he said. When it comes to average revenue per user, or ARPU, Snap made 90 cents per user during the first quarter of 2017. That's down 14 percent from $1.05 in the previous quarter. In terms of costs and revenue, Snap spent $219.8 million on sales and advertising and $805.8 million on research and development during the first quarter. Chief strategy officer Imran Khan pointed to case studies from Universal Pictures, L’Oreal and Anheuser-Busch as examples of successful ad campaigns and also said Universal Pictures has doubled its spend on the platform. “We started our advertising business by servicing big brands—this strategy proved invaluable,” he said. But Khan mentioned Snap’s recently launched self-serve platform that lets all brands and agencies manage their spend. Snapchat’s goal, Khan said, is to “put the power of our advertising product into the hands of every advertiser, regardless of their size.” Khan also took a jab at the TV networks’ work in reaching millennials, citing recent research with Nielsen. “We work with Nielsen on custom analysis and Snapchat’s unique daily reach in the U.S. when Nielsen found that 45 percent of 18- to 34-year-olds in the U.S. are reached by Snapchat on any given day,” he said. “This is nine times more than the average daily reach of the top 15 TV networks and nearly five times more than the top TV network. Additionally, 87 percent of our U.S. daily active users between the ages of 18 and 34 cannot be reached by any top 15 TV network.” Overall, “delivering metrics and proving ROI to advertisers has been a massive area of progress over the last 12 months,” Khan added. During the Q&A period of the call, investors repeatedly asked about Snap’s growth plan and pushed the execs to talk about growing competition from Facebook and Instagram. Facebook and Instagram have unrelentingly copied Snapchat’s features in recent months and when it comes to size, Instagram is winning. In April, Instagram reported that stories had 200 million daily active users. “There’s a lot of this thing in our industry called ‘growth hacking’ where you send a lot of push notifications to users or you try to get them to do things that might be unnatural,” Spiegel said, referring to Instagram and Facebook. “I think that’s an easy way to grow daily actives quickly, we don’t think that those types of techniques are sustainable over the long term and I think that can ultimately impact our relationship with the customer.” Ahead of today’s earnings, Matt Britton, CEO of Crowdtap, told Adweek that such copycatting means investors will undoubtedly continue to compare Snap’s business to Facebook. “The expectations of a company like Snapchat are really high because they’re looked at against Facebook in terms of a similar play—that puts them at a disadvantage versus other B2B tech companies that have IPOed during the same period,” he said. Size is only one measure of Snap’s success, though. The company has pitched its audience as a specific group of users who are loyal to the app and also works with more than a dozen ad-tech and measurement companies to analyze stats like viewability, offline sales and brand lift for advertisers. Chiefly, there’s Discover, the section of the app that’s populated by daily content from publishers including The New York Times, BuzzFeed and Refinery29. “We’re seeing strong growth among advertisers and Snap’s continued focus on original content that captivates audiences through sight, sound and motion is driving results for brands,” said 4C Insights CEO Lance Neuhauser. “Expect Snap to distinguish itself as a leading platform at a time when consumers are leaning into mobile video.” Spiegel also called out search during the call as an interesting area of growth for the company. “Search is exciting for us because it begins to expose the so-called long-tail of content on our service,” he said. “Search surfaces interesting stories created by machine learning and allows our community to find stories for anything that they may be interested in.” When asked about ad load within Discover, Khan hinted that there may be much more inventory within the app that isn’t being monetized yet. “We are very, very early days,” he said. “We are just scratching the surface in terms of ad load.”