Snapchat Has Instagram Problems, But Advertisers Don't Really Care

Snapchat - Instagram

Snapchat had a good start. When it first introduced ephemeral messages, people knew it was going to be a hype. It's IPO shared the same story. But as times goes on, things are changing.

Snapchat’s 2917 quarterly results aren't looking any better. Shares of the Los Angeles company slumped nearly 17 percent in extended trading. Snap reported daily active users and second-quarter revenue were below analyst forecasts, sending shares down to $12.

The stock debuted on March 2 at $24, compared with an initial public offering price of $17.

This is worrisome to investors. Snapchat only grew about 4 percent compared to the previous quarter, by only adding 7.3 million users, to a total of 173 million.

While this is still indeed better than Twitter that somehow stagnates, Snapchat is far behind Instagram. The photo-sharing company that is owned by Facebook, has added more than 100 million users between December 2016 and April 2017, or roughly 20 million users per month.

For the large part, that is because both Facebook and Instagram have blatantly copied some of Snapchat's unique and core features, especially Stories. Instagram said that 250 million people are using Stories since its first debut in August 2016.

Here, investors should consider the key performance indicator of what truly matter to marketers.

When it comes to media buying, brands are not focused on how fast a particular channel is growing. They are only focused on whether the property has a large enough concentration of targeted market and the right advertising formats to engage that market.

Snapchat

In Snapchat's case, audience size grew a but, but the impact metrics are still good.

In short, Snapchat is still having a pretty stable media plan. It's incremental growth is less important to advertisers than the ability to reach the current audience and make them to do actions.

The next thing that Snapchat is proven valuable, is its market. Most of its users range from 13-24 year-old, and expanding to 18-34. Audience at this age range is not easily found on linear television in the modern days of the internet and mobile. Furthermore, these people are showing that they do want to engage with brands who create great messages.

While user growth for Snap may not be accelerating as quickly as it did in previous quarters, advertiser don't really care. Advertising revenue jumped 146 percent year-over-year, and Snap Ads spend grew by 101 percent.

So despite its slowing growth, investors may not like the results. But advertisers aren't going to ditch Snapchat anytime soon.

Published: 
12/08/2017