Snap Pins Hopes on Subscriptions to Boost Creator Engagement

Facing a downshift in digital ad spend that’s hurt other players in the space, Snap Inc. is looking to beef up its direct response business and deliver quality over quantity with video impressions.

During the social platform’s fourth quarter 2022 earnings call with investors and analysts on Tuesday (Jan. 31), Snap CEO Evan Spiegel reiterated comments made in an investor letter, saying “2022 was a challenging year for our business as we continue to be impacted by macroeconomic headwinds, platform policy changes, and increased competition.”

Spiegel’s remarks centered on refocusing investments to support “three strategic priorities of growing our community and deepening their engagement with our products, accelerating and diversifying our revenue growth, and investing in the future of augmented reality.”

For Snap’s direct response (DR) portfolio of Snap Ads, Dynamic Ads and Augmented Reality (AR) ads, the company said that “despite the challenging macroeconomic environment, the number of advertisers spending on our platform was up year-over-year in Q4 as advertisers seek to reach our unique audience at scale.”

Spiegel moved to reassure an analyst concerned about advertising headwinds.

“Obviously the brand spend is significantly reduced as we saw on the quarter, but our direct response business continued to grow in Q4 and in general,” he said. “It seems like our partners are managing their spend very cautiously so that they can react quickly to any changes in the environment.”

Spiegel drilled down on Snap’s Q4 DR performance.

“We’re really improving the overall value of [ad] conversions. But as a result, the volume of those conversions has decreased as our models relearn,” he said. “Requiring advertisers to adapt, for example, so they need to see that increased value show up in their third-party measurement tools, for example, and then go in and increase their bids to reflect that increased value.”

Snap generated $1.3 billion in the quarter, which was flat year over year, “reflecting the rapid deceleration in digital advertising growth,” Spiegel said. The stock was trading down roughly 13% Tuesday as investors reacted to the lukewarm Q4 performance and lack of 2023 guidance.

The platform ended 2022 with 375 million daily active users in Q4, up 17% year over year.

To strengthen its hand in direct response — the platform’s primary revenue source — Spiegel said Snap “made progress updating and improving our ad platform over the past year across three key areas: investing in observability and measurement, improving engagement and conversion quality, and increasing the volume of high-quality engagements and conversions.”

“It will take time for these improvements to translate into improved top-line growth,” he added.

Attempting to improve monetization for creators and increase engagement, Snap introduced the Snapchat+ subscription model for $3.99 a month last August to pump up creator earnings and bring more viral video content to its Stories and Spotlight video products.

The Snap website states that for creators who make top-ranked Spotlights, “payments are determined by a proprietary formula based on various engagement metrics and other factors. The performance of other Creators’ Spotlights for the day will affect the payment total.”

The company said its location-based Snap Map product saw usage double in Q4 2022 over the comparable 2021 period.

“We believe that deepening engagement around Places will increase our monetization opportunity by building organic engagement around businesses with a physical location, which is a precursor to sponsored engagement,” the company said.

Absent a great Q4 story, Spiegel mentioned several pilots the platform is already rolling out in early 2023, including “big changes to our in-app UI, which we believe will help improve consideration because it aligns the ad UI with a more organic content experience,” and pixel advertisers seeing that “clicks are 40% more likely to result in a conversion” in the early going.