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Snapchat Turns to Subscriptions, AI Features to Offset Declining ARPU

Snapchat, Snap, earnings

As Snapchat struggles with declining revenue per user, the social media platform is looking to its burgeoning subscription offering, and its artificial intelligence (AI) capabilities therein, to bring in more revenue.

The app’s parent company, Snap, reported in its Q4 and full year 2023 financial results Tuesday (Feb. 6) that average revenue per user (ARPU) dipped 5% year over year in the quarter, even as it rose by 2% in North America.

Looking toward “accelerating and diversifying” its revenue growth going forward, the company highlighted its Snapchat+ subscription as a key growth area, adding more AI offerings to the program to make it more appealing to potential subscribers.

“Our generative AI efforts have been … focused on image and video models and helping people edit their snaps or generate snaps and in new and entertaining ways, and really using that as an onramp to Snapchat+,” CEO and Co-founder Evan Spiegel told analysts on a call. “We’re really excited that we reached more than 7 million Snapchat+ subscribers in Q4. And I do think that Snapchat+, you know, will be a way to monetize some of these more intensive image and video offerings that we’re rolling out.”

These efforts to drive paid subscriptions come as overall engagement with the platform continues to rise, with the social media app reporting a 10% year-over-year increase in daily active users in the quarter.

The move to drive paid subscriptions comes as social media platforms find that other kinds of in-app commerce integrations can be difficult to get off the ground.

The PYMNTS Intelligence report “Tracking the Digital Payments Takeover: Monetizing Social Media,” created in collaboration with Amazon Web Services, which drew from a census-balanced survey of nearly 3,000 U.S. consumers, found that 43% of consumers browse social media to find goods and services. However, only 14% ultimately purchase those goods and services via social media. 

Still, social media apps are looking to drive up adoption. TikTok, for instance, recently began testing a new feature that aims to make all videos posted on the platform shoppable, allowing viewers to easily find and purchase products featured in videos. 

Additionally, across the social media industry, AI is a key battleground to generate engagement, with major players in the space developing new intelligent features for users. Take, for instance, Meta.

“If we succeed, everyone who uses our services will have a world-class AI assistant to help get things done. Every creator will have an AI that their community can engage with. Every business will have an AI that their customers can interact with to buy goods and get support, and every developer will have a state-of-the-art open-source model to build with,” CEO Mark Zuckerberg told investors on Meta’s Thursday (Feb. 1) full year 2023 earnings call. 

As Snapchat faces challenges in maintaining its user revenues, the company is actively leveraging AI capabilities and its Snapchat+ subscription offering to attract more subscribers, monetizing its growing user base. Meanwhile, across the industry, key players are tapping shoppable features to drive revenue and leveraging AI to boost engagement.