Snap says ad sales rebounded in July but warns of Q3 Covid-19 headwinds

Snapchat's parent company has said that its advertising sales rebounded in July

Signalling a glimmer of hope for the industry, Snapchat's parent company has said that its advertising sales rebounded in July following a tough second quarter that saw brands cut spend because of Covid-19 restrictions.

In its Q2 earnings call on Tuesday (21 July) the Venice Beach-based firm noted that ad sales had picked up after growing at a weak rate in the second quarter. So far for July, estimated revenues were tracking 32% higher year-on-year.

However, the business has warned that uncertainty around events like back-to-school season and the limited operations of sports leagues could make for headwinds in Q3.

The Drum unpacks the social media group's latest financials and how they reflect on the wider industry.

What impact has the pandemic had on Snap’s numbers?

  • Snap generated $454.2m in revenue for the three months to June, marking a 17% year-on-year increase, beating analysts' average estimated revenue of $441.6m.

  • This growth was still weak for Snap though. To put into context, in Q1 it noted a 44% year-on-year revenue climb.

  • Snap's number of daily active users rose 17% globally over the same period, clocking in at 238 million. However, again that number represents a slowdown in the user base's year-on-year growth, which increased 20% in Q1 2020.

  • Snap revealed that users opened the app an average of 30-times a day in the second quarter — and increased their watch time of its Shows by 45% year-on-year.

What do Snap's ad revenues tell us about the wider state of the industry?

  • Snap is one of the first tech companies out of the gate to report Q2 earnings following a coronavirus-imposed lockdown, meaning Silicon Valley and Wall St analysts will be watching closely to gauge the health of the digital ad sector.

  • Offering a slither of positivity for Q3 and signalling a route towards recovery, Snap noted that its estimated revenues in July have been tracking 32% higher, year-on-year – well up on the 17% growth rate the app has experienced in the most recent quarter.

  • However, Snap’s chief financial officer Derek Anderson has cautioned investors not to not to bank on this trajectory continuing at the same pace.

  • He explained: "While we are cautiously optimistic that these trends could sustain over time, we are also conscious that operating conditions may remain volatile, and that economic conditions could further deteriorate."

  • "For example, Advertising demand in Q3 has historically been bolstered by factors that appear unlikely to materialise in the same way they have in prior years, including the back-to-school season, film release schedules, and the operations of various sports leagues," he added.

It also looks like Snap has benefited from Facebook’s advertising boycott

  • Another juicy insight from Snap’s earnings call was that the ongoing advertising boycott against Facebook has “opened the door” to advertisers that wouldn’t usually spend on the platform.

  • Chief business officer Jeremi Gorman said though it was difficult to determine the exact impact of the ‘Stop Hate For Profit’ campaign (which is seeing advertisers pull spend for the month of July to put pressure on the company to change its hate speech policies), it had led to conversations with high-level execs at brands.

  • “What we do know is that it’s always positive to engage at the highest levels of an organization, and this conversation has opened up the door for us to do that extremely frequently at the CEO and CMO levels,” she said.

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