The Daily: Positive signs for Snap?—Can it grow users in North America again, a new “Simple Snapchat” experience, and more

On today's podcast episode, we discuss what could help Snapchat add users in North American again, what a “Simple Snapchat” app could do, and the potential impact of a new “Sponsored Snaps” ad format. Tune in to the discussion with Senior Director of Podcasts and host Marcus Johnson and Vice President and Principal Analyst Jasmine Enberg.

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Episode Transcript:

Jasmine Enberg (00:01):

And whether or not Simple Snapchat boosts any of that further or brings in any of these new users, I do think as younger generations graduate to social media or start using social media, Snapchat is in a really good position to onboard many of those people.

Marcus Johnson (00:23):

Hey gang, it's Tuesday, November 5th. Jasmine and listeners, welcome to Behind the Numbers daily, an EMARKETER podcast. I'm Marcus. Today, I'm joined by our vice president and principal analyst who covers everything social media for us here. Based in California, it's Jasmine Enberg.

Jasmine Enberg (00:40):

Hey, Marcus. Hey, everyone.

Marcus Johnson (00:42):

Hello there. Okay, we start with the fact of the day and today's one is a Finnish fact because Jasmine's been bullying me. She came to my home.

Jasmine Enberg (00:52):

I have. I'll admit it. That I did not do.

Marcus Johnson (00:56):

So Jasmine's Finnish and I bring Finnish facts for her because she makes me and they're fascinating. So I have one, another one, it's been a while, but I've got another one for you, Jasmine.

Jasmine Enberg (01:05):

I'm excited.

Marcus Johnson (01:06):

In Finland, let's see if you can complete the sentence, in Finland speeding tickets are?

Jasmine Enberg (01:12):

Proportional to your income.

Marcus Johnson (01:14):

Exactly right. Links to your income. So John McKenna of the World Economic Forum was explaining that Finns run a day fine system. It's calculated on the basis of an offender's daily disposable income. Generally the daily salary divided by two as I understand it, and the more a driver is over the speed limit, the greater the number of day fines they will receive.

Jasmine Enberg (01:36):

It's true.

Marcus Johnson (01:37):

Okay. And it can get pricey. In 2023, British newspaper, The Guardian wrote about a Finnish multimillionaire businessman who was hit with a 121,000 Euro or $130,000 fine, speeding fine for going 50 miles an hour in a 30.

Jasmine Enberg (01:56):

Did he pay it?

Marcus Johnson (01:58):

I hope so. Yeah. I don't know. I didn't check. He better have. But as the US DOJ notes, while Finland was the first country to introduce a day fine system. In 1921, it was over 100 years old, several other European countries have followed suit, including Germany, Austria, and France. I think the UK actually has introduced one in the last handful of years, similar style of fine. But yeah, it's absolutely fascinating way [inaudible 00:02:27]. This is why Jasmine moved to the states. She said, I'm sick of paying these million dollar speeding fines. I'm out.

Jasmine Enberg (02:31):

Hey, hey, hey. I have never gotten a speeding ticket before and I do not intend to. Yep.

Marcus Johnson (02:36):

Ever.

Jasmine Enberg (02:37):

Never.

Marcus Johnson (02:38):

Oh, my goodness. That's not true. Anyway, today's real topic, how Snap is getting on. All right, Jasmine, today we're talking about Snap. Let's start with some of the quarterly numbers to set the table. So we'll talk about their Q3 performance, just to bring people up to speed with how they've been doing in terms of users, in terms of money. So let's start with the users. Snapchat added 11 million new daily active users in Q3 bringing its worldwide total to 443 million. Last Q3 the company added 9 million, so it's 2 million fewer last quarter than this quarter. So slightly more impressive in Q3 of this year. Slice of pie is where we begin, that's how we play our first question. And we do that by creating, I say by we, I mean Jasmine, creating a pie chart as to the reasons, three max, why Snapchat was able to grow daily active users, 9% in Q3 and add those 11 million folks. Jasmine, why?

Jasmine Enberg (03:43):

So I took this question or this pie chart literally, or maybe I should say geographically, and I looked at where those 11 million new daily active users came from. And so I am awarding 80% of the pie to the rest of the world because that region accounted for 80% or 9 million of the 11 million new users and 20% of the pie is going to go to Europe because it accounted for 2 million of the 11 million new users and that's roughly 20%.

Marcus Johnson (04:14):

Okay. What's interesting is it's averaging the same number of new daily active users per quarter this year, Q1, Q2, Q3 as it did last year. So if you look at all of last year, average about 10 million a quarter, if you look at the first three quarters of this year, it's averaging about 10 million a quarter. I think the year before that it was averaging 14 million. So a bit of a step change from 2022, but 2023 and 2024, it's been about 10 million per quarter. It's gone up and down a little bit.

(04:42):

But one thing that folks might notice Jasmine, based on what you just said, is 9 million of the 11 new people coming from the rest of the world, 2 million added in Europe. And so we're missing a key region there, which is North America. Snapchat reached 100 million daily active users in North America two years ago back in Q3 2022. Put another way, it's been stuck on 100 million North American users for the past eight quarters, which is why you may have noticed Jasmine didn't mention them as a region that's added any people because they haven't. So my question here Jasmine is will Snap be able to grow users in or Snapchat in its North American region ever again?

Jasmine Enberg (05:20):

Well just about the flatness in North America first. I mean it's certainly not good. As you mentioned, it's been at 100 million for about two years, but it isn't awful either given all of the intense competition for users.

Marcus Johnson (05:33):

Fair.

Jasmine Enberg (05:33):

That said, will Snap be able to grow users in the North American region is your question and what I would say to that is that is certainly their key objective here. Right. And so Snap talked a lot on the earnings call about a new version of the app that it's in the process of rolling out called Simple Snapchat. And currently that's only available to about 10 million people across different countries. And what they've said is that feedback so far has been good. And a lot of the reason for this rollout and this redesign, which really separates the messaging portion of the app from a content portion of the app, which will include Stories and Spotlight in a unified feed, is to bring in new users or reengage users who have lapsed particularly in the North American region.

(06:18):

As this rolls out, I do think we're going to see some disruption in usage and engagement. We always see that whenever a social media app rolls out a new feature or a big redesign like this, but I do think that experience will be better for users and for advertisers in the long run. And the truth is I don't really see usage and engagement as a huge problem for Snap when compared to some of the other social media platforms. Right. So even with this flatness in North America, the engagement trends among existing users are pretty strong, especially when it comes to messaging, maybe a little less so when it comes to content and whether or not Simple Snapchat boosts any of that further or brings in any of these new users, I do think as younger generations graduate to social media or start using social media, Snapchat is in a really good position to onboard many of those people. Where I am concerned, and I think where we're going to go next is in how Snap monetizes those users and that engagement because that is still somewhat of a struggle for the company.

Marcus Johnson (07:28):

Yes, you want to move on to the money side of things. Quickly on the user side, just looking at the other regions, Europe over that same period has done pretty well. North America has been flat, but Europe has added 11 million new daily active users going from 88 million to 99 million. So it's approaching that 100 million user ceiling that North America has been stuck at. However, Europe has twice the number of people in its countries as North America, and so there should be more room for growth in theory. The second thing here is that over half of Snapchat's users have come from outside North America and Europe called rest of the world for about two years now. And so that has been the story for a long time.

(08:03):

North America is just so important because that's where most of the money typically comes from on a dollar basis in terms of share, that share of North American revenue has been falling over time. But looking at the dollars Jasmine, Snap made close to $1.4 billion in Q3, growing 15% year-on-year. That's three times faster than the same period last year, which was just 5% growth in Q3 2023. So Jasmine we're playing slice of pie again. Create a pie chart as to the reasons three max, why Snap was able to grow revenue 15% in Q3, approaching that 1.4 billion in the quarter.

Jasmine Enberg (08:38):

So I struggled a little bit with how big to make each slice in this one, but here are the two slices. The first is the revamp of its direct response ad platform, and this is the biggest slice. Snap of course has been working really hard to improve its offering, making or giving advertisers more options. It's making it easier for them to advertise and to drive results. And now we're seeing that that work is starting to pay off given the growth and its direct response ad business as well as the number of active advertisers. The challenge of course going forward is going to be to get those advertisers to continue to commit and grow their commitments on the platform. And the second slice is Snapchat+, which now has 12 million subscribers and was a really meaningful contributor to growth. Even though if you look at the overall revenue that it generated, it was somewhat less than 123 million, which was Snap's, non-ad revenue figure. And most of that of course came from Snapchat+.

Marcus Johnson (09:39):

Okay, yeah, Snapchat+ it's paying subscribers $4 a month for that subscription. I think 3.99. Now we're 12, up from 11 they reported in August. And Andrew Hutchinson from Social Media Today was putting that in context by saying X, Twitter has been struggling to reach even 1.3 million X premium signups versus the 12 million that Snapchat+ now has. So it doesn't sound like billions, it doesn't need to be. But in context for people paying for a subscription to a social media platform, it's doing a lot better than some of its competitors in that space.

Jasmine Enberg (10:15):

And to give it a little bit more context too, if you think back to, I think it was September of 2023, sometime last year, CEO Evan Spiegel talked about these stretch goals that the company had for 2024, and one of them was having Snapchat+ reach 14 million subscribers by the end of the year. And so if it continues, it's well on its way to reaching that goal.

Marcus Johnson (10:39):

Yeah.

Jasmine Enberg (10:39):

And he also had a goal of reaching about 500 million in non-ad revenue, which of course again is primarily Snapchat+ subscriptions. And I calculated out over the three quarters to where Snap is mainly because I predicted that it would reach that 500 million and it's currently at 315 million in non-ad revenue. So it's got 185 million more to make in Q4. So we'll see how that goes.

Marcus Johnson (11:04):

Normally a big quarter. So doable. Interesting. I thought there were also some other positive signs, financial signs from the company. It's a sustained period of growth because 15% in Q3 is the third consecutive quarter of double-digit growth, which I think is impressive. And it's worth noting that before that the company had grown, last year it was negative in Q1 and Q2, and then in Q3 and Q4 it was 5% a piece. So this 21% in Q1, 16 the next quarter and 15 that they just recorded is incredibly impressive given where they were last year. Number two, they're creeping closer and closer towards profitability. They lost $153 million in Q3 of this year. That's half as much as they lost the same period the year before. So that's going in the right direction. And then average revenue per user as well up 6% year-on-year. So that's also solid.

Jasmine Enberg (11:52):

And I think those are both really good points when you're thinking about the stock market reaction for its Q3 earnings. Right.

Marcus Johnson (11:53):

Right.

Jasmine Enberg (11:58):

I mean, we know that Snap has been really volatile and I think the sustained growth in its revenues as well as the Q3 revenue beat really did help its stock rise, which is something that we haven't seen or we didn't see in the previous quarter.

Marcus Johnson (12:14):

Yeah. Yeah, that's a great point. Let's end Jasmine by talking about what else you're paying close attention to when it comes to Snap.

Jasmine Enberg (12:21):

Okay. Two things. The first is brand advertising. We talked a little bit already about the revamp of Snap's ad platform that's been really focused on its performance ad business. That drove the growth in its ad revenues, but brand advertising has been down by 1% over the past two quarters. And Snap said that it's not expecting a recovery there in Q4. And that's particularly problematic because Q4 of course is the big holiday shopping period where historically brand advertising has played a really big role. And on the earnings call, executives tried to temper some of the investor concern by saying it's a back-end weighted quarter, which is true, and there isn't full visibility on demand through the end of the period, but it is going to have to figure out how to re-accelerate the growth in brand advertising going into 2025. So that was one big weak spot for me.

Marcus Johnson (13:14):

Okay.

Jasmine Enberg (13:14):

The other thing that I wanted to talk about, and you and I have talked about this before, is sponsored Snaps.

Marcus Johnson (13:20):

Yep.

Jasmine Enberg (13:20):

That was a huge topic of conversation for investors on the earnings call as well, and something that you and I both talked about as being worth watching, even more so than the app redesign or simple Snapchat. Messaging with friends and with family in particular is still the core of Snapchat. Snap called it out as continuing to be the biggest driver of growth, but it is the one part of the app where advertisers haven't ever been welcome. So I do imagine as Snap rolls out sponsored Snaps or ads within the messaging surface, there will be a lot of demand. I also expect it's going to take time for that demand to ramp up and meaningfully contribute to Snap's revenue, partly because Snap has to roll those ads out carefully. And also because advertisers are still a little bit wary about advertising in the messaging surface, even though they know that that's where a lot of the engagement on Snapchat is happening.

Marcus Johnson (14:13):

That was one of the other things I thought you were going to mention. So I got two of the three or four that you brought up. One that I had written down that we've not talked about yet, but is Evan Spiegel, the CEO saying the company is now testing an AI-powered video generation tool, which they say is meant to turbocharge content growth. Any reaction to this or is this just table stakes it seems maybe at this point, social media companies?

Jasmine Enberg (14:39):

Yeah, I mean AI is table stakes at this point for social media companies. I think Snap is doing what it can to use AI and particularly generative AI to create more compelling experiences for people on Snapchat. I mean, it's incorporating GenAI into lenses or its filters, for example. It's also starting to use GenAI to create more experiences for Spectacles, which it also announced in Q3, the newest iteration of them. So yeah, I mean, all of these things could help drive engagement on the app going forward.

Marcus Johnson (15:11):

Yeah. Really quickly on that point, I mean they announced them, but they announced them before Meta said, hey, check out these Orion AR glasses. And then they had some other glasses that they, a concept pair that they were talking about looking to put out further down the road. Does this kill Spectacles dead in the water? What's your reaction to that area of competition with these social platforms being smart glasses?

Jasmine Enberg (15:39):

It certainly ups the competition, right, now that Meta has entered the race with Orion. Meta has a ton of resources, a lot more resources than Snap has. I will say the one difference right now is that Spectacles is not a consumer product, and Snap hasn't given a firm timeline into when they will be released to the public. Right now they're available to developers. And the one thing that Snap has kept saying about that is that they want to give it to developers first, who can develop experiences for the device so that there is a compelling use case once it goes to consumers. And Meta's Orion glasses also aren't available yet, even though I think they are already a consumer product. So there will certainly be a lot of competition once these are released to the market.

Marcus Johnson (16:24):

It does seem like a bit of a double-edged sword, doesn't it? Because soon as Meta announced their product, for Snap it was both, this is bad for us because now there's a very strong competitor in this space, but on the other hand, this is good for us because it validates this wearables market.

Jasmine Enberg (16:40):

Completely. And I think this has been a story with Snap and Meta for a long time. Right. Snap invents a product or a feature and Meta takes it and runs with it and makes it bigger and makes more money off of it. And I could certainly see that happening here as well. And if you look at the demand for Meta's Ray-Ban Smart Glasses, if that translates into demand for the Orion glasses, I mean, Snap has its work cut out for it.

Marcus Johnson (17:05):

Absolutely. All right, well that's where we have to leave today's episode. Jasmine, thank you so much as always, for spending time with me and the listeners today.

Jasmine Enberg (17:12):

Thanks for having me.

Marcus Johnson (17:13):

Of course. Of course. Thank you to you Victoria, as she edits the show. And Stuart runs the team. Sophie does our social media, so thank you to those folks. And thanks to everyone for listening into the Behind the numbers daily, an EMARKETER podcast. You can tune tomorrow to the Reimagined Retail show hosted by Sara Lebow, where she speaks with analysts Sarah Marzano and Arielle Feger, all about the emergence of financial and travel media networks.