Snapchat continued to add daily active users during the fourth quarter of 2019, but parent company Snap Inc. was still in the red for the quarter, posting a net loss of $241 million.
Snap reported $561 million in revenue for the quarter, up 44% year-over-year. However, the company’s net loss was $49 million higher than in the fourth quarter of 2018, due largely to a $187.5 million settlement of a class-action suit by investors following its initial public offering in March 2017.
Chief financial officer Derek Andersen said in his prepared remarks, “We shared last quarter that we intended to invest in the future of our business by growing our talent base, and we have begun to do so. Full-time headcount grew 11 percent year-over-year in the fourth quarter, with the growth in headcount focused on monetization and engineering, and this was the primary driver of our year-over-year operating expense growth. While there is typically a lag between investing in talent and improved output metrics, we are pleased with the momentum we are seeing from the investments we have made over the past year and expect to continue to invest productively in the growth of our business going forward.”
Snapchat closed the quarter with 218 million DAUs, up 17% compared with the fourth quarter of 2018, and the company said DAUs have increased sequentially and year-over-year in North America, Europe and the rest of the world, as well as on both iOS and Android.
Yuval Ben-Itzhak, CEO of social marketing platform Socialbakers, said in an email, “Despite its growing user base, Snap’s fourth-quarter results met with disappointment. Its investment in innovation is coming with a cost, and with the likes of Instagram and TikTok focusing on the same demographic, Snap faces the stiffest competition so far in the fight for ad spend. Over the past year, Snap has invested in flashy ad formats like 3D paint on selfies and Bitmojis, but only time will tell if funky content formats will be enough to keep marketers from moving their ad budgets to Instagram or TikTok.”
Snap pointed to moves it made to bolster its advertising platform, saying that revenue from its non-skippable commercials more than tripled year-over-year, while revenue from Story ads more than doubled.
CEO Evan Spiegel said in his prepared remarks, “We have started investing heavily in our ranking and optimization efforts this year to increase the scale and return on ad spend that we are able to deliver to performance advertisers. As these early investments are starting to bear fruit, we are getting better at increasing the value and relevance of each ad impression. Not only does this increase the return that our advertisers receive from their investment in our platform, but it can simultaneously reduce the number of impressions we show for a particular campaign. This frees up inventory for additional campaigns, while improving the user experience by reducing the number of ads shown that are not relevant to a particular individual. As with any new technology platform, we expect ongoing improvements to be steady but incremental, and we plan to significantly increase our investment in product and engineering talent to build upon the gains we have made in this area.”
Chief business officer Jeremi Gorman said in her remarks, “We are fully focused on making progress against our ARPU (average revenue per user) opportunity, which we believe in the short- to medium-term will be largely driven by advertiser demand. We have significant headroom in our business, given our high levels of engagement and ample supply of available impressions globally. As a result, we are focused on driving demand from advertisers to improve CPMs (cost per thousand impressions) in our self-serve auction.”
She added, “Looking at our current ad products and applying comparative industry CPMs to our own inventory, we are in a position to meaningfully close the ARPU gap relative to our peers. In addition, not only does demand growth increase contestation in our auction, driving up CPMs, but it also increases the number of ads available to choose from for each impression, improving relevance per impression and ultimately yielding higher ROI for our advertising partners, even at increased prices.”
Gorman continued, “To achieve our ARPU goals, we remain focused on our three key priorities: First, improving our measurement, ranking and optimization to drive relevance and deliver ROI. Second, building out our sales and marketing functions to support the needs of our advertising partners globally. Third, creating innovative ad experiences around video and augmented reality that deliver real business value. Our three priorities—along with our growing, global audience—will allow us to drive performance at scale for businesses around the world.”
eMarketer principal analyst Debra Aho Williamson said in an email, “Snap slightly beat our expectations for revenue in the 2019 fiscal year, and the growth of its ad business shows that marketers want to engage with its youthful audience. Snap has also been a standard-bearer when it comes to new ad formats, such as augmented reality advertising, and those features are attractive to some advertisers. Regarding user growth, user gains were strong in 2019 outside of Snap’s core U.S. and Europe regions, probably aided by the revamped Android application.”
The company was bullish on its Discover page, saying that total daily time spent watching content there was up 35% year-over-year, and that figure jumped to 60% for Snapchatters older than 25.
Snap said more than 50 Shows on its platform reached monthly audiences of at least 10 million viewers, and Spiegel added during his prepared remarks, “While our investments up to this point have been selective and measured, these Original Shows are already being watched by more than one-half of the U.S. Generation Z population.”
The company also debuted 78 new international Discover channels in the fourth quarter, up from 53 in the same period a year earlier.
Snap said over 125 million Snapchatters have watched Bitmoji Stories, personalized comics starring users and their friends, since they were rolled out in November 2018, and the company took the next step with last week’s introduction of Bitmoji TV, a fully animated, regularly updated cartoon series that will star users’ self-styled Bitmojis and their friends.
On the AR front, Snap said more than 75% of its community engages with AR every day on average, and Spiegel added, “In the fourth quarter of 2019, five times as many people went to Lens Explorer to search and browse AR experiences every day when compared to the fourth quarter of 2018, with more than 10 percent of our community using Lens Explorer every day on average.”
The company said more than 735,000 lenses had been created via its Lens Studio public AR creation tool as of the end of the quarter, up from over 600,000 at the end of the third quarter of 2019, and lenses made by the Snapchat community via Lens Studio now make up 20% of total Snaps with lenses sent each day.
The platform’s top-performing community lenses have reached billions of views, and over 200 million Snapchatters engaged with AR more than 13 billion times on New Year’s Eve, up from 9 billion the previous year.
Finally, Snap shared some highlights of products and features it debuted to keep its community engaged.
Cameos, which debuted last December, enable Snapchatters to add their faces to popular memes and create short, looping videos.
More than 150 partner app integrations were added during the fourth quarter via the Snap Kit suite of tools for developers, and 14 apps created by Snapchat partners are currently among the top 100 free apps in the iTunes App Store in the U.S.
Spiegel said in his remarks, “We have always believed that supporting real friendships and creating products to serve our community are core to building a long-term, sustainable business. On any given day, most people have something to share with their family and close friends, and using Snapchat allows them to communicate together in a way that is efficient and expressive. This means that our camera has become an important tool for maintaining relationships through visual communication and storytelling, creating a distinct competitive advantage for our company. Supporting daily self-expression, while harnessing the richness of visual communication, gives us a broad and unique long-term opportunity that will serve us well into the future.”