Snap pushes Chat as the ‘next frontier’ for performance marketing
Snap has updated a number of its ad solutions to push its Chat feature as the “next frontier” for performance advertising.
Sponsored Snaps will now be able to be purchased via Snapchat’s auction system using goal-based bidding. These could include optimising toward purchases, sign-ups or app installs.
In addition, Sponsored Snaps can be sent directly via a creator’s handle, allowing brands to more closely partner with chosen influencers via Snapchat’s Chat feed.
The platform has also announced a new “First Snap” placement to allow advertisers to deliver Sponsored Snaps to the top of users’ Chat feeds.
Analysis: Headwinds ahead despite strong Q1
Sponsored Snaps were first previewed to staff by CEO Evan Spiegel last September as part of an effort to move Snapchat from a destination for brand advertising to performance advertising.
Lower-funnel revenue, according to Spiegel, is “stickier”, “more predictable”, and “stable” compared to Snap’s less-consistent revenue from upper-funnel advertising.
“Volatile” brand advertising revenue and a lack of “stickiness” with bigger brands has been previously cited by analysts as a core concern for the company’s business model, hence the turn toward performance and greater emphasis on ad formats within Snapchat’s Chat feature.
In its Q1 earnings, reported last week, Snap announced it grew revenue 14% year on year to $1.36bn. CEO Evan Spiegel largely attributed growth to progress via its direct response ad solutions, as well as continued growth in the number of small- and medium-sized businesses advertising on the platform.
Direct response ad revenue contributed three-fourths (75%) of Snap’s total ad revenue in Q1, its highest share ever.
Meanwhile the total number of active advertisers grew 60% year on year as Snap attracted more SMB brands. This was on top of Q1 2024, when Snap nearly doubled (+85%) the number of active SMB advertisers.
While growth of new advertisers has slowed, Snap has been able to continue to attract new ad buyers.
“One of the things that we’re really excited about when we think about the SMB funnel is how much we’ve been able to do around automating the advertising onboarding process,” chief financial officer Derek Anderson said on Snap’s earnings call. “Making it really easier with some of our integration partners to get CAPI (Snap’s Conversions API) integrated and then automating campaign setup and optimisation selection so that advertisers can get started very easily and start to see returns on their advertising spend relatively quickly.”
Snap is copying the playbook from other tech giants, significantly Meta but also, more recently, Pinterest, in making the ad-buying process increasingly automated on its platform to attract more long tail brands.
In addition, Snap’s subscription business, Snapchat+, also grew subscribers 59% year on year to reach 15m paid members. Monthly plans cost £4.49 per month or £33.99 annually.
The app also continues to grow users, reaching 460m daily actives in Q1, a 9% year-on-year increase.
However, shares of Snap are down over 25% year-to-date and over 51% compared to this time last year.
The company declined to offer guidance for Q2, citing in its letter to investors uncertainty over “how macro economic conditions may evolve in the months ahead, and how this may impact advertising demand more broadly”.
The letter further outlined that Snap has “experienced headwinds to start the current quarter”, declaring it “prudent to continue to balance our level of investment with realised revenue growth”.
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