When Snap Inc. reports its first quarterly earnings as a public company tomorrow, eager investors hope they will finally get a hard look inside this typically secretive operation. Chief among their concerns is whether Snapchat’s user growth is stagnating and how CEO Evan Spiegel plans to win in a crowded social-media space dominated by larger incumbents, especially Facebook.
Snapchat is up against big competition from Mark Zuckerberg’s social-media empire, which launched a competing product to Snapchat Stories, called Instagram Stories, last year. As you can probably tell from the name, this is essentially a rip-off of Snapchat’s iconic stream of videos from all the people you follow. In its IPO filing with the Securities and Exchange Commission in February, Snap acknowledged that similar products on Facebook—as well as Instagram and WhatsApp—may stem its own user growth. The document also notes a slowdown in growth during the final quarter of 2016—the period following Facebook’s launch of Instagram Stories.
Still, Snap has grown revenues substantially in its short history. In December 2015, the company recorded revenues of $58.7 million for the year. The following year, that shot up to $404.5 million. Its average revenue per user also jumped over the same period, from 65 cents per user to $2.15 per user. That said, Facebook’s average revenue per user easily eclipses this number with $19.81, and Snap, unlike Facebook, is not yet profitable. In 2016, the company took a net loss of $514.6 million.
Snap reports first-quarter 2017 results tomorrow afternoon after the closing bell. Analysts expect a loss of 61 cents per share on revenue of $157.98 million.
Growing Up And Breaking Out
If nothing else, the company is showing it has room to grow. Next month, it’s opening up its ad platform even further to accommodate a range of advertisers and budgets, according to Business Insider. The automated ad manager will allow advertisers with smaller budgets to get in on the platform, tailoring their own campaigns and viewing analytics independently. Previously, Snap offered a more bespoke ad-building experience for more well-funded brands.
And Snapchat’s news and entertainment interface, Discover, may prove to be a key feature that will set the business apart. The ad offerings on its curated content platform are premium and are making publishers money. A recent report from the New York Times notes that despite initial upfront costs of content, publishers like Mashable are seeing the platform as a good source of revenue and a place to find loyal younger readers. Through curation, Snap has also been able to avoid the fake news crisis that has plagued other platforms.
Snap is also looking to build out its high-quality content even more. The company wants Snapchat Stories to become a hub for original show content. Over the last several months, Snap has been busy inking deals with major broadcast players for 3-5 minute shows that would play within Stories, according to the Wall Street Journal.
But even here, the company faces competition from bigger rivals like Twitter, which is ramping up live video deals with television partners like Bloomberg and the NFL. Facebook, too, is pushing further into video content and even putting an app on Apple TV. Against competitors, Snapchat touts its highly engaged audience of 18-34 year olds. The company says users over 25 tend to check-in on the app roughly a dozen times a day, spending about 20 minutes in app daily. Meanwhile, younger users spend about a half hour in the app each day.
Maybe the biggest question facing Snap is this: What is Snap? In the past, it has self-described as a camera company, launching a line of picture-capturing sunglasses as evidence last September. But its traction on Discover and investment in Stories make it look more like a content company, with hardware as more of an afterthought. Whatever Snap wants to call itself, investors will be looking for clarity on the ways it can succeed as a profit generator.