Rahul Sachitanand
Oct 22, 2020

Snap revenue climbs, but monetising new users remains challenging

Social media platform's revenue rose 52% for the third quarter, daily active users climbed 18% and overall per user revenue jumped 28%.

Snap's Lens studio is one of the innovations being used to bring in new users.
Snap's Lens studio is one of the innovations being used to bring in new users.

While Snap, the owner of the Snapchat social media platform, has reported a stellar set of numbers for its third quarter, its performance for what it terms 'Rest of World', which includes the fast-growing APAC market, trails behind other regions in an otherwise strong performance. While RoW posted the slowest revenue growth of the three regions Snap uses (the others being Europe and North America), the region did see the sharpest rise in average daily active users, even though their spending fell. 

For the third quarter of its financial year, Snap's overall revenue increased by 52% to $679 million compared to $446 million in the previous quarter. The firm's losses also narrowed to $200 million for this period, versus $227 million in the corresponding period last year. While North America's revenue's rose 56%, Europe was up 49% and Rest of World, the smallest contributor saw topline increase the least by 35% to $83 million.

"Our year-over-year growth rates for both daily active users and revenue were higher this quarter than they were in Q3 of the prior year. In fact, they represent our highest Q3 growth rates since 2017," CEO and co-founder Evan Spiegel told analysts in a post-results call. 

Snap has recently hired its first employee in Singapore and is making a concerted push into APAC as it seeks to find new drivers for its business. Some of that seems to be reflected in user addition, with daily active users (DAUs) up 43% to 87 million in the Rest of World segment. Overall user numbers rose 18% to 249 million for this quarter. 

"This was our fourth consecutive quarter of more than 15% year-over-year daily active user growth ... and we continue to reach over 90% of the Gen Z population and 75% of the Gen Z and millennial population in countries like the U.S., the U.K., and France," Spiegel added. 

Despite this sharp increase in this user base, Snap seemed to struggle to juice out more revenues from users in the RoW segment. While overall average revenue per user (ARPU) rose by 28% to $2.73, it actually fell by 6% to $0.95. North America and Europe fared much better on this metric, with 46% and 36% increase in per user revenues, respectively. 

"The acceleration of growth in Rest of World, reflects the benefit of our ongoing investments  ... in local content, language support, marketing partnerships, the popularity of augmented reality Lenses created by our community, and changing competitive dynamics," Derek Anderson, Snap's finance chief told analysts. 

Despite this mixed performance, Snap continues to focus on innovations to drive growth and some of these are coming from outside of headquarters. "Our Lens Studio platform allows people all over the world to create rich AR experiences ... some of these Lenses are used by Snapchatters across the world, while others are notable for their extraordinary regional engagement," he contended. "A university student in India created a Lens with a smoke flare effect which went viral in India and Southeast Asia, garnering billions of views on Snapchat and even more on other social platforms."

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