Snap-ocalypse through a different lens: Why it's not quite as bad as everyone thinks

The recession is likely to cause consumers to spend less, therefore advertising budgets may lessen. Caution is important, but panic is never helpful.

Chapman: 'Steadier heads can see that digital advertising has a lot going for it.'
Chapman: 'Steadier heads can see that digital advertising has a lot going for it.'

There is every sign that we are heading into a recession.

Across industries and markets, share prices are tumbling. People are saving less and borrowing more. The cost of living is rising. Consequently consumer spend is declining – and so are earnings for brands.

This deteriorating macroeconomic picture is causing panic among shareholders because the recession is likely to cause consumers to spend less, therefore advertising budgets may lessen, causing problems for the businesses almost wholly reliant on advertising for revenue.

The Financial Times went so far as to describe the current market as “ad-pocalypse now”, with commentators citing as proof the results of Meta, Alphabet, Twitter, Pinterest, Interpublic and Omnicom, all of which suffered significant nosedives in share price as a result. 

But in the eye of the storm was Snap. 

Just a few weeks ago, Campaign readers will have seen headlines reporting how advertisers had tripled upfront investment with Snap

But then, last week, the self-proclaimed lens company filed a regulatory earnings guidance stating that “the macroeconomic environment has deteriorated further and faster than anticipated”. As a result of these conditions, the tech business announced that earnings would come in this quarter “below the low end” of its guidance range, with analysts suggesting that this could be a harbinger of broader problems for online advertising. 

This has caused panic among investors. But fear is what sparks irrational decisions. And steadier heads can see that digital advertising businesses – in particular Snap – has a lot going for it.

Cooler heads prevail

Snap has long insisted it isn’t just an online advertising channel. Famously, it is a camera company.

Beyond just tactical positioning, this definition in fact empowers Snap to future-proof itself. The business focuses intently on the lens – and it has developed hardware, which makes it far less dependent on advertising, and consequently far more robust in times of crisis.

For example, UBS notes that brand advertising accounts for about 40% of Snap’s revenue, whereas it makes up about 85% of Twitter’s.

Snap has led the charge on AR. Expert analysts predict that by 2025, 75% of smartphone users will use AR features daily. On Snap, that number is already at 71%.

This has opened the door for brands such as MAC Cosmetics, Gucci and Louis Vuitton to invest in embedding AR into their marketing strategies, using Snap’s tech to create products that are automatically personalised to individual users.

Combining this surging uptake with research that shows how AR-guided purchases lead to a 25% decrease in returns, and that interacting with products with AR has a 94% higher conversion rate, suggests Snap’s investment in technology is a good bet against the current display ad-market uncertainty.

And these aren’t the only numbers that look good for Snap.

Snap reported $1.06bn in Q1 revenue alongside its announcement of growth in upfront investment, which is an increase of 38% year on year.

Snaps’ user base grew 22% to 332 million over the same time period, while average revenue per user increased to $2.74, up 36% year on year.

Snap’s connection with this audience is powerful. It has grown up using the platform, and innovates alongside it. It is made up of early adopters and regular, loyal users, who are hard to reach elsewhere.

A key reason Snap has held the engagement of these audiences for so long is because it is a safe space. And that applies both to brands and users.

Snap has invested in creating a truly brand safe platform, implementing several features that empower editorial control from advertisers as well as moderation from users directly.

Another interesting aspect of Snap’s user base is the fact that the majority of Snap’s users are on Android devices, insulating it somewhat from upcoming tracking changes on Apple’s iOS 14.5, which are designed to limit the data that app-creators can track and sell on to advertisers. Businesses now have to get explicit permission from users in order to track.

Real value

As an industry we have a tendency for exaggeration. Advertising isn’t going anywhere fast, but the rules of the game do change very quickly and there is a lot to be learned from Snap’s future-proofing approach.

We are living through an era of remarkable uncertainty, emerging from a period of unprecedented disruption – straight into a recession. And these contrasting forces will see strange things happen as investors grapple between price and value.

Caution is important. But panic is never helpful.

Snap’s stock may be taking a beating, but the value of the business remains clear. It is a serial innovator which has wisely invested in future-proofing itself through technology, as much as through its audience.

These bumpy economic times will pass. And when they do, Snap is in a strong position to achieve soaring growth.

Melissa Chapman is co-chief executive of Jungle Creations

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