Snap Inc. the parent company of the popular social media platform Snapchat reported in its Q1 2020 earnings – strong gains in both users and revenues but a dip in advertiser spend despite the growing concerns about the coronavirus pandemic.

No Coronavirus Negative Impact on Earnings-Yet

The stock was up nearly 20 percent after the company reported a 44 percent (Y-o-Y) increase in its first-quarter revenue to $462 million. That was a far better performance than expected. The ad spend growth grew 58% in January and February, and fell to roughly 25% in March (when the pandemic grew rapidly), the gains from the first two months helping to end the quarter positively.

CFO Derek Andersen said during Snap’s earnings call,

“The economic environment has become challenging for many of our advertising partners.”

The company didn’t provide guidance for Q2 citing uncertainty related to the worldwide economic crisis but in an unusual step, provided revenue growth figures for the first week of April.  The advertiser mix on Snapchat contributed to the Q1 performance and continues to help in Q2. Snapchat has a few small business advertisers unlike Facebook and Instagram, however many large advertisers are ready to commit on a regular basis.

Snapchat CEO Evan Spiegel said in a statement,

“We are grateful for the opportunity to serve our community and partners during this difficult time.” He added, “Snapchat is helping people stay close to their friends and family while they are separated physically, and I am proud of our team for overcoming the many challenges of working from home during this time while we continue to grow our business and support those who are impacted by COVID-19.”

Strong User Growth and increase in Engagement

Snapchat’s daily active user (DAV) base reached 229 million in the first quarter across all regions and on Android and iOS.This represents a 20 percent increase from last year.

There is some concern over the divergence of Snapchat’s users’ growth. Snapchat added 2 million more users in North America- the most lucrative market but the majority of the growth was from the ‘Rest of the World’ category. Snapchat has witnessed significant growth in the Indian market since it revamped its Android app, a key contributor to the ‘Rest of the World’ category.

However, the key area of opportunity that Snap would prefer to boost growth in the US as it will get more 3.5x more revenue per user.

Besides, the time spent on Snapchat has increased due to coronavirus. CEO Evan Spiegel reported that the average time spent in the last week of March vs. the last week of January was up more than 20%. On the other hand, markets like the U.K, France saw more than a 30% increase.

Mobile app tracker App Annie’s findings point out 54% growth in average time spent per user on Snapchat in South Korea from March1-14,2020, compared with Q4 2019. Italy marked a 36% increase and Japan was up 23%.

Additionally, this pandemic increased communication with friends and family on Snapchat, up more than 30% in the last week of march compared to the last week of January whereas in some other geographies there was an increase of more than 50%.

Games, TV, Chat, Calling are other highlighting points of group engagement.

Snapchatters watching Snap’s premium content hub ‘ Discover’ grew 35% Y-o-Y in Q1 2020 which represents the total time spent watching shows more than doubling this quarter. The company also mentioned hiring Hulu senior vice president of advertising sales Peter Naylor.

Chief business officer Jeremi Gorman said,

“As TV budgets migrate to digital, they move to places that carry the same advantages of linear, and we’ve been investing in those things for years. Peter is just the most recent investment in the strategy.”

Snap has also launched App Stories -brings its popular stories feature to the app. It also launched five new Snap games globally.  With the use of videoconferencing and live streaming to connect with friends and family, Snap has seen more than 30 times increase in the daily download of Snap camera, a desktop app that allows people to add lenses to whichever video service they use. Besides, it added more than 120 partner app integration with its Snap Kit,  and the numbers of Snapchatters using on a monthly basis is up 75% from the Q4 of 2019. 

Direct-Response advertising budgets make up half of the revenues.

Snap continues to double down on direct response advertisers especially in games, home entertainment, CPG, and eCommerce. Direct response advertising now accounts for more than half of Snap’s revenue.

Speigel noted,

“In the short-term, we’re shifting sales resources and pulling forward some investments in direct response to better serve the advertisers who are trying to reach our audience during this time. For example, we can help movie studios pivot to digital releases by supporting them with a suite of products designed to track titles over a dynamic and flexible release window. We’ve also seen many large brands doing a lot of important things to help their community and the broader world, and we’re helping these brands communicate their efforts to our audience in a thoughtful and approachable way that inspires others to make a positive impact.”

Snapchat recently worked with Universal on the promotion of the animated film ‘Trolls World Tour’ released digitally incorporating Trolls AR masks into Snap Camera add-on a feature that gained significant momentum as more people work from home. 

Snap has worked immensely hard over the past few years to build out measurement capabilities and ad products to interest the direct advertisers resulting in nearly double total ad revenues in two years.

So what has Snap done to get this?

Snap introduced conversion-optimized bidding- which allows advertisers to optimize toward their sales or app install gaols, conversion-tracking advertising pixels, and improved ad-targeting capabilities. This has attracted performance advertisers who already buy those types from other platforms.

Snap has focused on offering unique ad products like augmented reality platforms and easy self serve ad platform.

 Chief business officer Jeremi Gorman said,

“Advertisers are looking for a way to make a dollar go further. “We have efficient pricing, and we’re a great place to come to get ROAS for the audience they’re looking for.”

There is also something for Snap’s brand advertisers. The company has doubled the amount of money committed via upfronts in 2020 vs. 2019. Snap is using its creative services to help brands distribute their PSAs related to COVID-19, like the filter from Adidas encouraging people across the United Kingdom and Germany to stay at home that was viewed more than 14 million times.

Snap has a lot of potential and capacity to reach a young audience. Although things look gloomy for the remaining year of 2020, Snap appears more stable and an attractive platform for advertisers and partners. If Snap manages to expand its market appeal geographically, it will be well-positioned beyond COVID-19.