Spotlighting Snap’s Advertising Business
Advertising represents 97% of top line
Despite describing itself as a camera company, Snap (SNAP) depends on advertising for the majority of its revenues. So, Snap’s advertising business is the company’s most closely watched operation.
In 2Q17, Snap’s advertising sales rose 146% year-over-year and 25% sequentially to $176.3 million. Considering that the company posted overall revenues of $181.7 million, advertising represented more than 97% of the revenues in the latest quarter.
Of the $176.3 million in advertising revenues that Snap reported for 2Q17, $164.8 million came from the company’s direct sales, and $11.5 million came through its partner sales. The chart below compares advertising sales by Snap and its partners.
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The impact of programmatic advertising
The growth in Snap’s advertising sales in 2Q17 was supported by the ongoing uptake of the company’s automated ad-buying process—what the industry calls programmatic advertising. According to Snap, programmatic advertising enables it to run more campaigns from more advertisers.
The company’s automated ad buying is also yielding better ROI (return on investment) for advertisers and a better experience for Snapchat users. With improving ROI for advertisers, Snap can encourage marketers to spend more on its platform, resulting in more revenues for the company.
Snap addresses advertiser concerns
Ahead of Snap’s 2Q17 earnings release, CNBC reports described advertiser frustrations with Snap due to unsatisfactory ad measurement and reporting. The exit of celebrity users from Snapchat was also cited as a reason some advertisers were losing interest in Snapchat advertising.
However, through programmatic advertising, it appears that Snap is addressing these problems. The company noted that it can deliver better ROI for advertisers and improve the experience for users, which could reduce subscriber churn.