Snap needs to quickly prove that there’s space for a third major digital advertiser

Image: Reuters/Lucy Nicholson
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Snap will report its second-quarter earnings Aug. 10, and after a turbulent first few months as a public company, it will need to show investors and advertisers that it deserves to be in the same conversations as Facebook and Google.

The company unveiled an entirely new platform for developing and running high-quality video ads on Snapchat in June, and as TechCrunch reported then, it will need to prove that it’s as simple and useful as running a campaign on rival services. Snap generated roughly $150 million in revenue last quarter (and the overwhelming majority of its revenue comes from ads on Snapchat), which was up over 280% from the $38 million it generated in the same quarter the year earlier, but about $15 million less than the fourth quarter of 2016.

Snap needs to show Wall Street that it is a growth company—some analysts had been expecting quarter after quarter of sequential revenue growth, and Snap is already disappointing. This earnings report must show that advertisers are treating Snap as a part of their media plans, rather than something to try out and move on.

Analysts are expecting revenue for the quarter to be around $189 million, up from $72 million in the same quarter last year, according to Business Insider.

Snap has an uphill battle proving that it deserves to be on par with Facebook and Google, which overnight can launch new products with their legions of engineers and sales teams that could effectively crush demand for Snap’s own services.

Instagram recently announced that Stories, the section of its app that pretty much copied Snapchat’s own Stories section, now has over 250 million people using it daily, well beyond the 166 million people Snap has checking Snapchat every day. But Snap has said since its IPO filing that one of its differentiating traits for advertisers is the fact that people spend so much time on the app—the average user checks the app 18 times a day, and spends between 25 and 30 minutes on it each day. For comparison, the largest social network in the world gets about 50 minutes of its average users’ time per day.

Google is reportedly working on a service built into its search engine that would function much like Snapchat’s Discover section, where users can read and watch purpose-built content from publishers—broken up by ads—as a sort of digital magazine.

According to eMarketer, a marketing analytics firm, Snapchat accounts for about 1.3% of the mobile advertising market, which is dominated by Google and Facebook.

Snap’s growth has been slowing in recent quarters, but given how engaged its users are, slowing growth wouldn’t matter much—if Snap has figured out how to generate more revenue from each user.

In its last earnings report, Snap said its average revenue per user fell from $1.05 in the fourth quarter of 2016 to $0.90 in the first quarter of 2017—that’s still a 181% increase over the same quarter in 2016, though, so it’s entirely possible that Snap will post an equally large jump in average revenue for this quarter.