Snap Inc. released its quarterly earnings for Q1 2018, reporting $230.7 million in total revenue for the first quarter of the year.
Year over year, Snap’s total revenue saw a 54 percent jump — but revenue was down compared to the previous quarter, when it reported $286 million in Q4 2017.
CEO Evan Spiegel attributes the loss in revenue to the company’s decision to roll out a major redesign of the app this quarter — separating user content from creator content.
“As we have mentioned on our past two earnings calls, a change this big to existing behavior comes with some disruption, especially given the high frequency of daily engagement of our community,” says Spiegel.
The CEO says the company is starting to see early signs of stabilization for its iOS users since the redesign, but the platform still has work to do for Android users.
“Android performance is still a weakness for us, but we are making significant progress. Given the volume of changes we made with the redesign, a number of performance regressions contributed to a disproportionately negative impact among Android users, and we are currently working on addressing them,” says Spiegel.
Snapchat’s daily active users (DAUs)
Snapchat had an average of 191 million daily active users during Q1. The CEO says average DAUs were down in March, but overall for the quarter, they were slightly up from the 187 million average DAUs reported in Q4 2017.
“Our time spent remained more than 30 minutes per day on average following the redesign, and we have also started to realize some of the positive benefits, including increased new user retention for older users,” says Spiegel, noting again how the platform’s redesign impacted numbers.
Snap reports that it has doubled its user base over the past 2 1/2 years and that more than 60 percent of DAUs are creating Snaps with the platform’s camera.
Snapchat advertising revenue
Snapchat’s total ad revenue for the quarter was $229 million, up 62 percent year over year. Drew Vollero, Snapchat’s chief financial officer, reported Snap Ads were the company’s fastest-growing product during Q1 — specifically, Snap Ads sold via the platform’s self-serve programmatic auction-bidding platform which it opened to all advertisers in February of this year.
Snap Ad impressions on the platform were up 450 percent year over year, while Snap Ad pricing dropped 65 percent year over year — a good thing for advertisers, but the drop negatively impacted Snap’s overall revenue.
“While our decision to migrate our Snap Ads business to our programmatic auction led to a short-term slowdown in our revenue growth last year, we made the transition quickly and the company is far better for it,” says the CEO, offering an optimistic view of the obviously negative outcome.
Snap says its average cost per app install and average cost per swipe in the US during Q1 were well under half of 2017 costs, and the number of advertisers actively spending on its self-serve ad platform grew 20x over the past year. SMB revenue growth was up 30 percent quarter over quarter.
“As we have outlined before, one of our key priorities is to grow our SMB, or Online Sales, business,” says Snap’s chief strategy officer, Imran Khan. “In order to onboard these advertisers, we have been rolling out our self-serve tools and investing to create a frictionless buying experience.”
New ad products
In the prepared statements released before Snap’s earnings call, the company outlined two new ad products it is in the process of rolling out: its Reach and Frequency tool and Snap Pro for Business and Creators.
The Reach and Frequency tool is currently only available to a select group of large advertisers in the US and UK, allowing them to plan campaigns and buy ads in advance via the self-serve ad platform.
“We launched Reach and Frequency within our self-service platform and are partnering closely with Unilever UK, P&G US, Google US and UK and Microsoft UK,” says Khan. Snap’s chief strategy officer notes that there is still a lot of work to do to bring it fully to market.
The Snap Pro for Business and Creators will give “public entities” a tool to help build their reach organically.
“With Snap Pro, it will be easier to manage a public profile, create and distribute content, understand audience insights and ultimately, advertise with us,” says Khan.
Snapchat says it is still “extremely” early in its launch of Snap Pro, and that it has only recently onboarded a select group of brands and creators.
Looking toward next quarter, the company anticipates its Q2 growth rate to decelerate substantially compared to Q1. The chief financial officer also made comments on recent employee layoffs, claiming that Snapchat’s primary operating expense were “people costs.”
“We hired over 2,400 people in the last two years, and we’re now digesting that growth in an evolving world. As a result, during Q1, we had a 7 percent reduction in force, in order to better align resources around top strategic priorities and reflect structural changes in our business,” says Vollero.
Going forward, Snap’s overall point of view is that it will continue to focus on long-term opportunities over short-term results.