Snapchat Needs To Better Monetize Its Platform

Snapchat has an interesting, value-added platform but can it monetize it? Twitter (TWTR) had a similar situation a few years ago. Its platform had tens of millions of active users, but would advertisers pay for it? To generate more ad dollars Snapchat increased the number of companies that could market their products on its platform. CEO Evan Spiegel recently revamped the site to separate [i] photos and videos generated by users’s friends from [ii] content from by publishers, creators and influencers.

In separating the “social” from the “media” Spiegel is taking a big risk. He practically has to in order to increase user engagement and generate more ad dollars. In Q4 2017 the company’s ARPU and CoRPU were $1.53 and $1.00 respectively. That created $0.53 per user to cover other costs like R&D and SG&A. Snapchat’s R&D and SG&A were a combined $2.36 per user, yielding EBITDA per user of -$1.83. To become EBITDA positive the company must rapidly grow its user base, increase ad rates, increase user engagement or cut costs.

Tasks within its control could be cutting costs or amplifying user engagement. Snapchat recently laid off over 200 employees related to advertising and engineering as it seeks to rightsize the business. I believe the next evolution is to amplify user engagement and keep people interacting longer with one another on the site. This could potentially generate higher ad dollars. In my opinion, the more incendiary the content the more engaged users can be.

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