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Snap’s Advertising Business: What You Need to Know

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Advertising revenue growth

Snap (SNAP) prefers to be called a camera company rather than a social media company. But it relies on advertising for most of its revenues, just like social media companies Facebook (FB) and Twitter (TWTR).

In 4Q17, Snap’s advertising revenue rose 74% YoY (year-over-year) to $281 million compared to 59% YoY in the previous quarter.

Advertising sales accounted for 98.4% of the company’s overall revenue in 4Q17. It accounted for 98.5% of Facebook’s revenue that same quarter. Yelp’s (YELP) advertising represented 95.5% of its revenue for the same period. Twitter and Google’s parent Alphabet (GOOGL) earned 84.2% and 88% of their revenues, respectively, from advertising sales in 4Q17.

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Investments in ads starting to pay off

Snap’s advertising business has benefited from the investments the company made in recent months. Snap has invested in enhancing its ad product suite, creating efficient tools for marketers and proving the effectiveness of its advertising service.

“We executed well on our 2017 plan to improve quality, performance, and automation, which removed friction from our advertising business,” Snap’s chief executive officer Evan Spiegel told analysts during the conference call to discuss the 4Q17 results.

Ad budgets shifting to the Internet

Generally, Snap’s advertising business benefited from secular trends in the global advertising sector where marketers are slowing down spending on television commercials and spending more on digital ads. According to Magna, global digital ad spending reached $208.8 billion in 2017, beating television ad spending of $178.5 billion. As recently as 2010, television ad spending was more than twice the digital ad budgets.

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