Snap revenue up 5% on stronger digital ad market

Snap, the parent company of Snapchat, yesterday reported its revenue rose 5% in the latest quarter after two straight quarters of declines on a rebound in the digital advertising market.

The company cautioned the ad market remains volatile, pointing to the impact of war in the Middle East.

“Since the onset of the war in the Middle East … we have had a number of primarily brand-oriented campaigns pause spending in the early period,” CFO Derek Andersen said in an analyst call yesterday. “I will say that we have seen a lot of those campaigns resume spending and the impact to our daily run rate has reduced significantly as a result of that but we also have seen a very small amount of incremental campaign pauses trickle in more recently.”

Revenue for the third quarter was $1.19 billion, up from $1.13 billion a year ago and above Wall Street estimates of $1.11 billion. In the previous two quarters, Snap’s revenue had fallen between 4% and 7%. The company remains unprofitable — its net loss of $368 million for the third quarter is wider than a loss of $360 million a year ago.

Ad platform improvements

In a letter to investors, Snap said the company has “focused on improving our advertising platform” to generate higher returns for advertisers.

“We continue to make really significant investments in the ad ranking and optimization of creating a much broader range of signals into the ad platform and driving much larger models,” Andersen said. “And we’ve also instituted a much faster pace of experimentation. All of that’s leading to more precise conversion predictions, improved ROI for advertisers.”

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The company said it has invested in improving ad ranking and optimization using ML models, leading to a significant improvement in ROI for advertisers and an increase in lower-funnel revenue year-over-year and quarter-over-quarter. Also, its 7/0 Pixel Purchase optimization now lets advertisers bid for attributed seven-day clickthrough conversions.

Snapchat also reported working with advertisers to improve the effectiveness of their privacy-centric integrations with the ad platform. This resulted in significantly higher signal quality for those advertisers. Last quarter, Snapchat introduced the Event Quality Score (EQS) system for advertisers to measure the quality and integrity of their data and identify opportunities to optimize their integrations with the ad platform. 

Increase in paid subscribers

Daily active users for the third quarter were 406 million, up 12% from a year ago. Last month, Snap said it had reached five million users for its paid subscription services, up from 4 million in June.

Because Snap is primarily used as a messaging platform — and doesn’t run ads in those messages — it’s had a hard time monetizing its users. To rectify that it has ads in features like Stories and Spotlight, scrollable feeds of photos and videos from creators. Last month, it partnered up with Microsoft to include ads in the form of sponsored links, in Snap’s AI chatbot My AI.

In its earnings release, Snap reported more than 200 million people have used My AI, sending more than 20 billion messages. CEO Evan Spiegel said in yesterday’s analyst call that while My AI is just getting started, it will eventually be a revenue driver.

“Our primary focus right now is just improving response quality,” Spiegel said. “We’re seeing some of the work we’re doing to improve those responses lead to higher retention with the product overall. There’s certainly plenty of commercial intent. We are taking steps to integrate into our models to help folks see more relevant content and advertising.”