The reality is that there are still too many reasons for advertisers not to spend more of their dollars there. The numbers bear this out.

Ad revenue is still down

Snapchat raked in $1.07 billion in revenue over the second quarter of the year, down 4% on the same quarter a year ago. It’s the second time in a row that Snapchat’s sales have fallen. In April, the platform saw sales slump 7% year-on-year, which was its first quarterly sales decline since it became a publicly listed company in 2017. 

Despite Snapchat’s efforts to arrest this decline, it’s likely to continue for a while yet. 

One marketer, responsible for media in a global FMCG business, who exchanged anonymity for candor, told Digiday that they find it hard to justify allocating more budget to Snapchat. For their business, it’s a  tier two or possibly tier three platform in terms of ad spending. That’s not to say this marketer doesn’t want to spend more of their ad dollars on the platform. On the contrary, they do, given its audience and the innovation there. Their bosses, however, remain unconvinced about advertising on the app. And because of that, Snapchat always gets compared to Instagram Stories, which “doesn’t help its reputation in our circles,” continued the marketer.

Views like this have intensified because marketers are finding it increasingly difficult to track their ads on the platform, making it more difficult for them to justify allocating more budget to Snapchat.

“Before the rise of TikTok, Snapchat felt like the preferred avenue to reach younger audiences,” said Kelly Dye, vp of product and innovation at Acorn Influence, a New Engen company.  “Now, it’s not as vital, with TikTok giving us access to Gen Z and beyond with content that’s not ephemeral.” 

Grim as this all sounds for the one time social media darling, its fate isn’t sealed yet. 

After a rocky first quarter of 2023, the social media app seems to have made a number of moves in the right direction to position itself for future growth, including hiring Microsoft’s Rob Wilk as the platform’s first president of Americas, to oversee sales in the region. Not to mention its further investments in AR as well as creators, the latter of which transitions to click-based interactions and the retraining of its machine learning algorithms for greater optimization of click-throughs. 

While it’s too soon to pass judgment on the outcomes of these moves, it would be premature to label them as failures. There’s a chance that they could come up trumps for Snapchat in the long run.

“Snap has done a lot of work to diversify its revenue streams, which is smart and the right move, given the struggles it’s had with the advertising business. But it’s not going to have a major impact on the platform’s bottom line just yet,” said Jasmine Enberg, principal analyst, social media at Insider Intelligence.

At least Snapchat doesn’t have to worry about its audience — yet. 

Users are on the up

Over the last quarter, Snapchat reached 397 daily active users (DAUs), which was up 14% year over year, and a further increase on the first quarter’s total of 383 million DAUs. The upward trajectory looks set to continue for the foreseeable future. 

Looking ahead, Insider Intelligence forecasts that in the U.S., Snapchat will reach a total of 91.7 million monthly active users by the end of 2023, increasing to 93.8 million in 2024 and 95.9 million users in 2025. More broadly, the platform is expected to reach 694.7 million monthly users by the end of the year, worldwide, increasing to 734.8 million in 2024 and 769.2 million users by 2025, according to the market research company.

Though of course these estimates are lower than Snapchat’s previously announced 750 million MAUs back in February, but that’s down to the company stripping out bots, fake accounts and multiple accounts for a single user.

Based on the forecasts from Insider Intelligence, there is a possibility that Snapchat could surpass TikTok as the fastest growing platform globally this year. However, this potential growth is heavily influenced by Snapchat’s increasing popularity in India, where it has seen significant uptake following the TikTok ban in the country.

Furthermore, TikTok already achieved more than 1 billion MAUs back in September 2021, according to the platform’s own data. So while Snapchat might become the fastest growing platform, it still has a much smaller overall user base. 

Not that this should be a problem. Snapchat has shown repeatedly over the years that it can drive engagement effectively with the audience it does have. The latest stats for its TikTok-style short-form video feed Spotlight is a testament to this. 

For Q2, the total time spent watching Spotlight content tripled year over year, according to Spiegel on the call, while Spotlight reached an average of more than 400 million monthly active users — which represents an increase of 51% year over year.

Clearly, Snapchat’s problems aren’t so much about its audience as much as they are about how well it can gain the acceptance of marketers and differentiate itself from competitors. No wonder it’s looking beyond advertising to make money from its audience.

Subscriptions have boosted

Snapchat’s subscription service, Snapchat+, which provides users with exclusive, experimental and pre-release features — all for $3.99 per month — saw decent growth.

By June 2023, the subscriber base had already reached four million paying subscribers, and was further reiterated on the call. This is up from Q1’s three million paying subscriber total. The quick growth is not only testament to Snapchat’s loyal users, and the platform for figuring out what features and perks their users want from the service, it disproves the theory that people aren’t willing to pay for a service they previously got for free.

Enberg pointed out that Snapchat has the right user base for this, as Gen Z in particular is actually willing to pay for certain features and services that add to their social media experience.

“Four million subscribers is a major feat,” she added. “Clearly, they [Snapchat] are onto something in terms of what their users want from the platform. But it still translates to less than  $200 million in annual revenue. So again, [subscription revenue is currently] not a big impact on its bottom line.”