While it still has some tricks up its sleeve, there’s no immediate route to re-ignite revenue growth.
Snap, Inc.’s third quarter 2017 earnings caught notice: a $40m accounting write-down on unsold Spectacles glasses and a complete reversal on product strategy towards a re-design of the app. In Snap’s ad business, things were no better: Snap’s Average Revenue Per User is only 10% of Facebook’s, revenue growth is rapidly diminishing, and there’s no clear path to fix it. Management attributed the revenue issues to temporary changes in the ad business’s structure, but barring the outsized success of the pending product re-design, the weakness is likely permanent.
In late 2012, the magical ingredient that ignited Facebook’s massive revenue growth was mobile app advertising. These advertisers intensely measure the profitability of their ads, and found great success with Facebook. There are signs that Snap’s revenue troubles are driven by a struggle to capture this market, a billion-dollar missed opportunity.
At the same time, Snap is spending hundreds of millions buying non-core ad tech companies…