Can Snap’s investment in ad solutions help it weather Apple’s incoming privacy changes?

Snap’s Q1 results have shown an ad company in rude health. The business posted revenue of $770m – up 66% year-on-year – and attributed much of that growth to the maturation of its higher margin ad options. It also tacitly acknowledged that it enjoyed a much more certain first quarter as Apple’s expected changes slipped later into the year, now launching next week.

Snapchat’s strong Q1 results bolster its chances as Apple changes its IDFA tracking tools

Looming changes from Apple

• Apple is making wide-ranging changes to its IDFA tools, which it says are in service of protecting user privacy. The changes will grant users the ability to see the personal data their device shares with advertisers, and opt out accordingly.

• It is forecast that both Snap and Facebook are set to be hit most heavily, and Facebook has gone on the offensive against Apple claiming the change will disproportionately impact small businesses. Snap’s chief financial officer Derek Anderson has previously suggested it will take a $50-70m loss in adjusted EBITDA from the changes, and in the latest results acknowledged that it might be several months before the impact becomes apparent.

• Despite that, Snap’s chief business officer Jeremi Gorman said that both Snap and its ad partners welcome the change, and have prepared a suite of tools to mitigate or circumvent any damage:

• "We are supportive of Apple’s approach because we have always believed that advertising should respect customers’ privacy. The fact that these changes are coming later than we anticipated has provided additional time to adopt Apple’s SKAdNetwork and begin implementing and testing with our partners.

• “Advertisers that represent a majority of our direct response advertising revenue have successfully implemented SKAdnetwork for their Snap campaigns.”

Snap’s strong Q1

• Snap’s first quarter results build on a strong end to 2020, which saw the impact of its higher-value ad offerings come into play.

• According to its results release “revenue is estimated to be between $820m and $840m, compared to $454m in Q2 2020”.

• Average revenue per user increased 36% year-on-year to $2.74.

• Average effective CPMs rose almost 67% as a result of increased promotion of its higher value products – including its unskippable 6-second video ads – and refinement of its auction process.

• Daily active users rose 22% increase year-on-year to 280 million – across both iOS and Android, driven in large part by strong uptake in India. It amounts to its largest period of user growth in three years. Notably Snapchat’s Android user base is even larger than that on iOS.

• In addition to entering into partnerships with brands including Gucci and Samsung, in March Snap also announced its partnership with Gannett in the US. This project is designed to connect Snap with a range of over 100,000 small and mid-sized businesses, which should strengthen its ad revenue stability in the face of any more changes to the digital advertising ecosystem.