Snap announced revenues yesterday and the stock got hammered. The miss was about 15% off projected but the company still did half the revenue it did all last year in one quarter. Pretty solid.
What matters is not what Snap did last quarter but the overall potential of Snap as a company that sells media. Looking at the first few years of revenue growth for Google, Facebook and Twitter provides a nice template from which to gauge what Snap will need to do if it wants to get its stock price moving in the right direction and start to bank some profits.
Let’s start by looking at the real unicorn here – even when compared to Facebook and that’s Google.
Google went from $400M in 2002 to $3.2B in 2004. An incredible trajectory.
Facebook went from $272M in 2008 to $2B in 2010. Still amazing.
Twitter went from $300M in 2012 to $2B in 2015. Hell, that looks just like Facebook trajectory. But something happened (which I’ll get to). Revenues hit a wall. Twitter only grew to $2.5M in 2016. 2017 will be flat-to-down.
Now let’s take a look at Snap.
Snap did $400M in revenue in 2016. It will do about $800M in 2017.
To be on the pace of Twitter and FB first few years of revenue it would need to do $2B next year. That seems unlikely since it would be large increase in growth – larger than the current rate.
So what can Snap do?
Both FB and Google had self-serve products. Snap just rolled theirs out only a few months ago. That is promising.
The big challenge will be the advertiser base.
The types of advertisers that built Google and Facebook were performance based. Facebook made performance work because the scale of inventory was more than anything ever imagined possible in digital (= low cost per) and the rise of apps. Google made performance work because it had the most valuable dataset, real-time consumer intent (= high cost per) and it was easy to understand the benefits of search-based advertising. Snap has none of these dimensions.
Snaps other big problem is their user base.
More than 70% of users are Women under 34. Half of that are under 24. It’s not that this demo is not important. It is. It’s just that this is their only real demo. So while there are 10 Billion video views a day, it heavies up in an area that excludes a lot of advertising dollars. These are problems Google, Facebook and Twitter didn’t have.
Lastly there are still big problems with product as it relates to ads. If you’ve ever seen anyone power use Snapchat it’s a sensory overload. That type of use is hard to breakthrough with brand messages that can be relevant and achieve attention.
I’m rooting for SNAP. I actually use and enjoy the product and they sit in some really interesting areas for mobile media. If they are going to figure this out though it will require coming up with a scalable advertising solution as unique as the product itself.
If that sounds familiar it was exactly what Dick Costello promised us Twitter would deliver. If that had happened, Twitter would be on the revenue trajectories of Google and Facebook five years into advertising, rather than serving as an example of what not being able to figure that out looks like.
With the brand needs of mobile video inventory, Snap has a lot of people hoping they can figure out advertising. But patience can be short in the public markets. The next 12 months are crucial for the company and it will be one of the most interesting things to watch in media especially as they are about to launch their redesign.
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