Snapchat Records 397M Users and Witnesses Increased Engagement from Advertisers in Q2

Snapchat's Q2 2023 Performance Report: User Base Surges in Developing Markets, Encouraging Signs for Ad Business.

Snapchat recently published its Q2 2023 performance report, showcasing a notable increase in its overall user base, particularly in developing markets, along with promising indications of recovery for Snap's advertising business. The platform has witnessed a surge in active ad partners, who are experiencing improved optimization performance.

Regarding users, Snapchat achieved an impressive milestone by adding 14 million more daily active users (DAU) during Q2, bringing the total DAU count to 397 million.

The majority of this growth is attributed to the 'Rest of the World' category, with Snap recording an addition of only a million more users in both North America and the EU, respectively. Outside of its main markets, Snap gained 12 million more users, with India displaying solid adoption due to increasing mobile usage and better connectivity, providing the app with fresh opportunities to reach this audience.

Over the past year, Snap has experienced a remarkable increase of 40 million users in the 'Rest of the World' category, while adding 10 million in the US and EU. This trend bodes well for the platform's future prospects, even though the immediate revenue benefits might not be as substantial.

As evident from the provided charts, Snap's average revenue per user (ARPU) is significantly lower in the bottom right category. This indicates that despite Snap's efforts to attract more users, its revenue is not increasing at equivalent rates. Nevertheless, there are positive signs of recovery in its advertising business.

Snap's total revenue for Q2 amounts to just over a billion dollars, representing a 4% decline compared to the same period last year. However, there is a positive sign of growth as it reflects an 8% increase compared to the previous quarter.

The company is still in the process of recovering from the effects of the fluctuating digital advertising market and the broader economic downturn. Despite these challenges, Snap highlights that its ad tools have shown improved performance, which has resulted in a more robust adoption over time.

“In Q2, we made progress toward improving results for advertisers through machine learning (ML) model updates and infrastructure improvements, new ways of measuring and optimizing advertising spend, and new leadership for our go-to-market efforts. We are pleased to see that this progress is beginning to translate into improved results with record active advertisers in Q2, up more than 20% year-over-year, and through improved advertiser retention compared to the same time period last year.”

The increased influx of advertisers to the app is a positive indicator for Snap's future success. However, this surge in advertiser interest has not yet translated into significant revenue growth for the company. Snap is currently in the process of expanding its more advanced ad targeting tools and adapting its systems to comply with evolving privacy and data restriction measures.

Snap faced particular challenges due to Apple's iOS 14 update, which presents users with the option to choose whether they want to share data with an app or not. Given Snap's commitment to user privacy, it was not surprising that a considerable number of Snap users opted out of sharing additional information. This, in turn, compelled Snap to restructure its ad targeting methods.

Snap's infrastructure costs have experienced a significant increase of nearly $50 million during the period, largely attributed to the development of AI and AR technologies. This investment also reflects the ongoing expenses incurred in transforming its ad targeting process to better cater to the needs of its partners.

One specific area of noteworthy growth is Snap's TikTok-like short-form video feed, Spotlight. The total time spent watching Spotlight videos has more than tripled year-over-year, indicating the sustained popularity of this format. As a result, Spotlight now boasts a monthly reach of over 400 million users, marking a remarkable 51% increase compared to the previous year. While replicating features from competitors may be seen as unoriginal, it's clear that such tactics are well-justified as they allow each app to adopt the best ideas from one another, driving user engagement.

Moreover, Snapchat+ has continued to gain strong traction, attracting 4 million paying subscribers. This success outshines Twitter's performance with Twitter Blue, which has only garnered an estimated 700k sign-ups despite Twitter's more aggressive marketing efforts. This stark contrast reflects the value that Snap provides to its dedicated user base and the attractiveness of the add-ons included in the Snapchat+ package.

Twitter Blue, the subscription service that initially marketed verification ticks as its primary value proposition, has sparked significant division among its users. Fans of Elon Musk have shown enthusiasm in subscribing to the service and have gone as far as criticizing those who opt not to subscribe, viewing their decision as a political statement.

On the other hand, Snapchat+, a competing platform, has adopted a more cautious and measured approach to its subscription model. Despite this, the inherent value provided by Snapchat+ has attracted a large number of users, leading to a remarkable uptake in S+ subscriptions, nearly six times more than Twitter Blue's usage.

One of the key features that has garnered substantial interest within Snapchat+ is the 'My AI' conversational chatbot. Initially launched exclusively for Snapchat+ subscribers, the chatbot has now been made available to all users, further enhancing its appeal and utility.

“Since launching My AI, our AI-powered chatbot, over 150 million people have sent over 10 billion messages, which we believe makes My AI among the largest consumer chatbots available today. We are testing My AI monetization with sponsored links that connect our community with partners relevant to their conversation in that moment, while helping brands reach Snapchatters who have indicated potential interest in their offerings.”

The demand for generative AI continues to surge, and Snap has successfully capitalized on this trend by integrating a generative AI element within its app. This addition has resonated positively with at least some segments of its user community. To enhance the capabilities of this feature, Snap has introduced visual elements to the 'My AI' chatbot, allowing users to generate responses based on visual cues. Furthermore, the company is actively working on expanding its AI features to include generative visual tools.

While Snap is making progress in revitalizing its ad business, there is still room for improvement. Encouragingly, more users are joining the platform in developing markets, and advertisers are increasingly testing Snap's improved ad offerings, which bodes well for future revenue growth.

However, there is a concern regarding the cost associated with generating that revenue, as there has been a notable increase in Snap's infrastructure spending. This surge in spending might be a one-time occurrence, part of the company's broader investment strategy to enhance the platform and create more opportunities. Nevertheless, in the current quarter, this heightened expenditure has impacted the overall financial figures.