Can Snap Sustain Revenue Growth of 50% Annually Over the Next Several Years?

Snap Inc. made some ambitious promises at its Investor Day Tuesday, saying that it expects sustained annual revenue growth of 50% for the next several years, and detailing how each of the five buttons at the bottom of the Snapchat application have contributed and will contribute to that growth. Co-founder and CEO Evan Spiegel said during his opening remarks, “It’s amazing to be here at our first-ever Investor Day, nine years after our founding. And what a nine years it’s been. Sitting at my dad’s dining room table all those years ago, (co-founder and chief technology officer Bobby Murphy) and I could never have imagined creating a business that reaches so many people. Each day, we serve 265 million daily active users, and we’ve had a ton of fun transforming the way people live and communicate around the world through our service.” That 50% figure came up often during the event, with chief financial officer Derek Andersen saying, “We believe that based on the monetization platform we’ve built and the product roadmap we have discussed today, we can responsibly grow our topline revenue at 50% or better year over year for at least the next several years.” Senior director of product Peter Sellis chimed in, “Via the work on our self-serve ad platform, we’re in a position to drive multiple years of 50%-plus revenue growth.” Chief business officer Jeremi Gorman concluded, “Put very simply: We have a long runway ahead of us. Our audience is growing, and it’s hard to reach on other large platforms. We have pioneered the most innovative ad products—our vertical video and augmented reality formats are poised for robust growth in advertiser demand.” Even Snap Partners weighed in, as Boaz Cohen, senior vice president of business ad development at StitcherAds, said in an email, “Snap is a rocket ship right now because it has broadened Snapchat’s user base by evolving as a platform. Snapchat isn’t just a way to share with your friends and family—it’s become a mainstream entertainment channel. From AR and lenses to Discover and Spotlight, the company is constantly innovating with both technology and content to make itself stickier and more interesting to a wide audience. That’s an attractive value proposition for advertisers, who have a variety of inventory types and features they can tap into and see great return on ad spend from their campaigns—as much as 10 times, according to our data.” The company said the Snapchat Generation—Generation Z and millennials using the app—makes up over 40% of global consumers, and Snapchat reaches more than 70% of 13- through 24-year-olds in countries accounting for over one-half of global digital ad spend, with 80% of its reach encompassing users over the age of 18. Snap added that while it accounts for under 2% of the current digital ad market in the U.S., the Snapchat app reached nearly one-half of smartphone users, noting that it reached record advertiser totals in each quarter of 2020, and it sees an opportunity to continue that trend. The company detailed plans to invest in monetization and sales capabilities to more quickly capture this ARPU (average revenue per user) opportunity, as well as in products to build on its innovation and marketing offerings. Spiegel said, “In 2020, we generated $2.5 billion in revenue during a challenging year. We also met our goal of full-year adjusted EBITDA (earnings before interest, taxes, debt and amortization) profitability. What’s most exciting is that we’re positioned to continue our growth well into the future. Our meaningful operating leverage means we can reinvest ambitiously in our products and make big bets on the future of augmented reality.” Turning to the aforementioned five tabs at the bottom of the Snapchat app, Gorman said, “Longer-term, we believe Snapchatters will engage naturally with businesses of all sizes across our service, whether through a brand’s profile, finding store hours on Snap Map or interacting with products using an AR Lens,” while Sellis added, “Our long-term vision is that each of the five platforms generate revenue proportional to the value they provide our community.” Highlights from each of those five sessions follow. Camera The camera is where it all starts for Snap, which bills itself as a camera company, not a social platform. Spiegel said, “Our camera is used to create Snaps to send to friends or add to Stories; post on our Map; and submit to Spotlight. So, our camera is already capable of extraordinary things. But it is AR that’s driving our future.” Andersen added, “We believe the camera will be a multibillion-dollar platform and that AR represents our most exciting long-term opportunity.” Spiegel noted that Snap’s recent AR try-on beta program with over 30 brands led to Snapchatters trying on products more than 250 million times, adding that they were 2.4 times more likely to click through to purchase than users who did not tap the try on feature. Murphy detailed the three pillars of Snap’s AR platform: Innovating in technology to unlock new capabilities in the camera.Exploring creatively to design exciting and informative experiences.Supporting a growing community of AR consumers and creators. He added, “Many of the lenses we might consider silly or playful—a vomiting rainbow, a dancing hot dog or a whale flying through the sky—are really a chance for us to deploy cutting edge tracking or segmentation technology to hundreds of millions of people, from which we can immediately learn how to refine our strategy to advance the field of AR.” Communication Over 1,000 apps have integrated with Snap Kit, and almost 150 million Snapchatters engage with those integrations every month. More than 30 million users also play games every month, and Snap said game developers saw revenue from its platform double year-over-year in the fourth quarter of 2020. Andersen was bullish, saying, “We believe that our innovative and community-focused approach to monetizing our communication platform will build it into another billion-dollar platform over the long term.” Vice president of product Jacob Andreou added, “Our communication platform is a core driver of retention for our service and the engine that brings people back multiple times each day. In the past year, we’ve made foundational improvements to performance to make communication even faster by rewriting and regionalizing critical parts of our backend infrastructure.” And Murphy said, “As powerful and portable as modern computing is, we are constrained in how we engage with it—hunched over, with our fingers tapping and swiping on small screens. Advances in technology will change this, overlaying digital experiences directly in our field of view and empowering us to engage with computing the same way we do as humans, with our heads up, looking out at the world in front of us.” Snap Map Andersen called Snap Map “a logical on ramp to Snap’s advertising platform for millions of small businesses around the world,” and Spiegel noted that over 250 million users engage with Snap Map every month, both to find their friends and to discover new businesses, adding, “There are more than 35 million businesses on the Map, and a growing number of small businesses see our Map as a new way to build relationships with our audience.” On that note, Sellis said, “Local businesses are considered the backbone of the economy. We launched our first offering, Promote Local Place, alongside the addition of Place Listings as part of our response to helping small and midsized businesses through the pandemic. This was the first time that businesses were on the Map. It included a dedicated buy flow that directs Snapchatters to a Place listing on the Map, along with new targeting and measurement options. We’re going to spend a lot of time expanding these products to work for the largest multi-location enterprises in 2021, but they were honestly reactive to the pandemic, and we feel that we have yet to truly build on the potential of the Map.” He added that because Snapchatters using Snap Map have location services enabled, Snap will be able to accurately measure and drive store visits, and it plans to continue to add value to Places and eventually allow local businesses to claim their Places on the Map. Andreou concluded, “On other platforms, everyone sees the same Map. But on Snapchat, we are building the world's most personal Map. Your Snap Map reflects your world; it features the people, places and activities you care about, and no two are the same.” Stories and Discover Total time watching Shows on Discover was up almost 70% in 2020 compared with 2019, and 70 Shows drew monthly audiences of at least 10 million each. Snap said revenue from its Commercials six-second non-skip video ads more than doubled year over year in each quarter of 2020, and it now has localized content on Discover in nine different languages from nearly 500 partners in 17 countries. Senior vp of content and partnerships Ben Schwerin said, “With Discover, we set out to reinvent the newsstand, and when we launched Shows, we collaborated with our partners to reimagine what it meant to watch short-form video on a phone. Together, we’re producing compelling, dynamic content experiences and providing brands with premium, curated marketing opportunities … In the second half of the year, over 85% of the U.S. Gen Z population watched at least one Snap Original, shows made exclusively for Snapchat.” As for Stories, Andreou explained the iconic and imitated feature’s origins: “Years ago, while listening to our community, we were inundated with requests for a ‘send to all’ button, but we knew this idea had issues. Being able to send a Snap to everyone at once would devalue receiving one and risk the service becoming spam-ridden if people were sending Snaps to all of their friends all of the time. But Snapchatters wanted an easy way to communicate with all of their friends at once. As we studied the landscape, we were confused by the reverse chronology and permanence of the existing forms of one-to-many sharing. This kernel of an exploration grew into Stories, the revolutionary format used by billions of people around the world across major digital platforms.” Spiegel added, “Stories is another important platform for Snap. Despite substantial competitive pressure, Stories has become our largest driver of revenue. It’s a place where people share their Snaps with their friends in narrative form and watch content from professional publishers and influencers. We generate the vast majority of our revenue from Snap Ads inserted in between those Stories. And these ads allow our community to take direct actions by swiping or tapping, and they’ve become an important tool for direct-response and brand advertisers.” Spotlight The most recent addition to the bottom navigation bar, Spotlight debuted last November as a way for the company to reward creators, both professional and amateur, to the tune of roughly $1 million per day. Spotlight is shining bright, as Snap said earlier this month that it attracted 100 million daily users in January, with some 175,000 submissions per day chasing their piece of that $1 million pie. Andreou said, “We set out to build Spotlight as a place directly within Snapchat that allows anyone to reach a massive audience if they make a great Snap. We also designed Spotlight with our long-held values at its core—it doesn’t feature public comments, and all profiles are private by default. All content on Spotlight is moderated through automation and human review before it’s widely distributed—a critical aspect of living up to the high expectations of both our community and our advertising partners. With Spotlight, we didn’t stop at democratizing creativity and distribution: We also democratized the creator economy with our incentive program, where anyone can earn.”