Snap, the parent company of photo and video sharing app Snapchat, increased losses by 44% year-on-year for the fourth quarter, weighed down by a US$100 million one-time charge it took to settle investor claims that the company didn’t properly disclose the impact on its business from competing with Facebook.
For Q4 of its financial year, Snap's losses swelled to $241 million on $561 million in revenue, as the firm struggled to find a path to profitability two years after a messy initial public offering.
In Q4 2019, Snap’s revenue increases 44% year-over-year, from $390 million in the corresponding quarter of the previous fiscal year. For the same time frame, the company saw revenue growth across its reported geographies, with North America, Europe and the rest of world category up 42%, 47% and 49%, respectively. For the whole year, revenue increased by 45% year-on-year to $1.7 billion, even as losses narrowed by 18%.
The company's share price fell more than 13% in after-hours trading.
“We believe that the best way to build a global business is to invest in products and partnerships that are locally relevant and reflect local culture, while reducing the barriers to using Snapchat,” Evan Spiegel, the founder and CEO, said on a conference call. “Visual communication is a high-bandwidth activity that can be burdensome in markets with limited and expensive cellular internet.” The company has worked with over 70 cellular carriers to cut these costs, and these ongoing efforts have helped cut Snapchat’s median cellular data usage in half in the past six months, the company said.
Daily active users to the Snapchat app increased by 31 million overall in the fourth quarter of the year, driven by 36% increase in rest-of-world, even as new users in its core North America market grew only 9%. To try to compete in a tough market, company executives on the call said it is focusing its efforts sharply on identifying and marketing to a unique audience.
This growth was likely due to the launch of a revamped Android app, eMarketer principal analyst Debra Aho Williamson contended. “Snap has also been a standard-bearer when it comes to new ad formats, such as augmented reality advertising, and those features are attractive to some advertisers,” she said.
In the US, Snapchat reaches more than 90% of 13- to 24-year-olds and more than 75% of 13- to 34-year-olds, Jeremi Gorman, Snap's chief business officer, said on the call. “Our community engages with our service for over 30 minutes per day on average, and our advertisers have unparalleled reach with the valuable 13- to 34-year-old demographic that makes up the majority of Millennials and Gen Z.”
To drive advertising revenue growth, Snap has launched solutions that lean on its content and augmented-reality platforms in order to drive better outcomes for advertisers. Video is a top priority, and the company has started to scale Commercials—its six-second, non-skippable, full-screen video format—and Snap Select, which enables fixed-CPM buying of Commercials in prepackaged, premium inventory.
Contending that long-term brand-building on mobile remains a challenge for marketers, Gorman said Snap would use its “camera-first functionality and our Sponsored AR Lens formats” to look for new growth. “We are at the beginning of building out our AR ecosystem for brands and providing additional value beyond paid media,” he added. ”For example, this quarter we announced that McDonald’s and Coca-Cola are the first brand partners to utilise our Scan camera search technology.” Snap is putting together a team to work more closely with its advertisers to integrate these offerings.
Despite these moves, Snap has a long way to go before it can challenge Google, Facebook and Alibaba’s stranglehold over worldwide digital ad revenues. According to an estimate from eMarketer, Snap’s share was just 0.5%, with Google's and Facebook's shares at 32% and 21.1%, respectively.