Snap’s ad spend bounces back after pandemic decline

Snap has swiftly recovered ad spend revenue after a dip at the onset of the Covid-19 pandemic. 

The company’s revenue soared to US$911 million in the fourth quarter of 2020, representing an increase of 62% year-over-year, according to its financial report.

Average revenue per user increased to $3.44 over the same period, an increase of 5% from the previous quarter and 33% year-over-year. 

“Revenue from our Commercials ad product more than doubled year-over-year in Q4 as we continue to see building demand from advertisers seeking to reach Gen Z and millennial audiences at scale,” said Snap CFO Derek Anderson.

Snap’s advertising revenue fell in Q2 as brands faced disruption in the wake of the economic impact of Covid-19. 

Now, advertisers are returning to Snap as the number of users grows. 

Snap’s daily active users also saw an increase in Q4, rising to 265 million or 22% year-over-year in all regions on both iOS and Android. The company’s Discover platform became a focal point in Q4, with over 90% of the US Gen Z population watching shows and publisher content.

Given recent events at the US Capitol and pauses on ad spend in the first two weeks of January, Snap did note that Q1 2021 started slower than otherwise expected and it anticipates to see further interruptions with iOS platform policy changes.

“It is not clear yet what the longer term impact of those changes may be for the topline momentum of our business, and this may not be clear until several months or more after the changes are implemented,” Anderson said. 

AR

Snap is continuing to grow its AR capabilities as ecommerce continues to grow and more people shop online. For instance, in Q4 the company partnered with NYX Professional Makeup, Ralph Lauren, Sweat and The New York Times to launch augmented reality-powered advertising experiences.

Snap expanded its efforts with a partnership with Perfect Corp to enable more than 200 beauty brands to upload their catalogs to the Snap camera for augmented reality try-on, and the company added app install as a goal-based bidding objective for sponsored AR Lenses.  

“We've seen a lot of acceleration and demand for AR advertising, in particular, as more and more people are at home and the living room becomes the new showroom,” said Jeremi Gorman, Snap’s chief business officer.

As a result, Snap’s focus is to create tools that can help deliver ROI to advertisers, democratise the process of creating a filter and make it more affordable, she added. 

Over 200 million daily active users on Snap engage with augmented reality lenses every day.

While Snap’s overall eCPM increased 46% year-over-year in Q4, the company believes its eCPM’s remain well below market rates for its audiences and ad units. Snap has several platforms it has not not yet begun to monetize. 

For instance, Snap launched its TikTok-rival feature Spotlight in Q4, which has grown to more than 100 million monthly active users in January, though it has not yet been tested for advertising as the company is focused on scaling engagement on the platform, Snap CEO Evan Spiegel said during the earnings call.

“Fortunately, we've got a lot of demand for vertical video, which is the format we will use to monetize Spotlight,” Spiegel said. “But we're focused on the product experience today and we'll think about testing a little bit further down the road.”

For now, the company continues to grow its content platforms such as Discover, creator economy through Spotlight and various advertising tools including Commercials. 

Recently, the platform launched Snap Connect, an extension of its online learning portal Snap Focus that focuses specifically on direct response advertising.