Snap stock prices bolstered on back of adtech investments and rejuvenated user growth

Over 90% of ads delivered on Snapchat are now sold via its auction model but this has had a downward pressure on pricing

Despite a period of staff cutbacks plus misgivings over its recent redesign, Snap posted strong revenue and user increases in Q4 which proved popular with investors, with its leadership trumpeting its adtech investments as well as increased traction with both large and small advertisers.

"Programmatic is the fastest growing element of the business," said Snap's chief strategy officer, Imran Khan, speaking on its subsequent earnings call, with leadership also claiming the introduction of the auction model helped double the number of advertisers spending on the platform.

The Snapchat-owner yesterday (February 6) posted revenues of $285.7m for the three months to December 31, 2017, representing a rise of 72% year-over-year, with ad revenue accounting for $281m. Meanwhile, full-year revenue numbered $824.9m, up 18% year-over-year.

Snap's average revenue per user for the period was $1.53, representing an increase of 46% year-over-year while its cost of revenue per user was $1.02 in the final quarter of the year, an increase of 5% compared to 12 months earlier.

The results represent a "major step forward for Snap" according to its leadership, with an increase in the number of daily active users (DAUs), plus the number of ads delivered using programmatic technology now accounting for over 90% of ads on the platform.

The increase in the number of brands purchasing Snapchat ads using the auction model, which more than doubled in Q4, has resulted in downward pressure on its pricing (which was down 15% sequentially).

However, Snap's leadership is confident the resulting increase in the number of buyers bidding on inventory will help further its ad revenue growth rate, which was 74% year-over-year during the reporting period.

Fielding questions from financial analysts, Khan also claimed that in spite of the initial success of its programmatic offering, and its accompanying lag on pricing, Snap would not open-up its inventory to third-party demand-side platforms (DSP) over privacy concerns, even if this would help swell CPMs.

"By opening up to third-party DSP providers there is always risk that some of the user-IDs will leave our platform, and we are really focused on user privacy,” he said, ruling out such integrations.

“Anybody can log on to our platform and buy advertisements. There are a lot of advertisers that are looking to acquire new customers, and with our strength in the millennials market we are really excited with what we have to offer.”

Snap's leadership were also keen to highlight how its recent adtech investments, including the purchase of Metamarkets, were geared towards helping advertisers better measure how their spend on the platform is gaining traction with users.

For instance, strategy chief Khan said the average engagement time for ads bought via its auction offering is now more than 10 seconds, adding that the number of app installs via its ad units increased by over 15-times in the second half of the year.

Khan also pointed out that while Snapchat is still predominantly a brand advertising offering, it is also moving to court smaller advertisers as evidenced by its recent Pixel tracking tool rollout, with leadership claiming that the number of SMB advertisers using its platform more than doubling quarter-over-quarter.

According to Khan, Snap's Pixel rollout is also beginning to unlock spend, especially with e-commerce advertisers, with one-in-three partners in the Pixel beta program now spending on the platform. Also, he further highlighted how Snap's partnership with the National Research Group suggests that Snapchat users help generate over 50% of opening weekend theater ticket sales in the US.

Investors reacted positively to the results with Snap's share price up by as much as 20% in the early hours after the disclosure in what is a welcome turnaround for the Snapchat-owner, which had earlier been negatively affected by the introduction of its auction model.

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