Tech

Here's why some advertisers are still bullish on Snap

Key Points
  • Expected revenue: $236.9 million, according to a Thomson Reuters consensus estimate
  • Expected earnings: A loss of 15 cents per share, according to a Thomson Reuters consensus estimate
Evan Spiegel, Snapchat
Getty Images

Despite bad news for Snap — download rates are lower, Instagram is beating it in ad sales, and Wall Street expects it to report another loss — there are signs the company might be gaining traction among advertisers.

Companies like the fact that Snap's users often don't overlap with those of chief rival Instagram, meaning advertisers can reach a different group of consumers. And while many of its features are being copied by Instagram Stories, it excels in some desirable ad features such as location tracking and augmented reality, several companies told CNBC.

Snap reports earnings after the bell on Tuesday and is expected to report revenue of $236.9 million and a loss of 15 cents per share, according to Thomson Reuters consensus estimates.

Snap's download rates seem to be declining. Social data company Likefolio found Snap download or install mentions are at its lowest point since its IPO in March 2017.

Snapchat downloads and install mentions are at their lowest numbers post its IPO.
Likefolio

In addition, daily mentions of the company on social media have decreased since Instagram Stories launched in August 2016.

Snapchat mentions have declined since Instagram Stories was released.
Likefolio

Snap declined to comment.

Market research firm eMarketer dropped its annual global revenue estimates for Snap in October from $900 million to $774.1 million based on growth rates and lackluster advertiser revenue.

"It definitely hasn't grown as quickly as we thought it was going to, and we're seeing quite strong growth in Instagram," said eMarketer principal analyst Debra Aho Williamson.

Rival Instagram reported 500 million daily active users as of September, and its feature Stories reported more than 250 million daily active users in June. In contrast, Snapchat reported 173 million daily active users in its Q2 earnings report.

"Many advertisers are wary of the newest, latest and greatest," said Marci Dobrow, senior vice president of advertising at ad tech company HYFN. "If their return on ad spend is going well in other places, why buck the system?"

But it isn't all bad news. HYFN says its clients are getting more interested in the company. Snap offers more opportunities to create augmented reality experiences, which new iPhones have made more popular, and also has high engagement time among users, Dobrow said.

Marketing technology company 4C — which handles about $1 billion in ads — said it saw a 73 percent increase in advertising buys on Snap this quarter compared with last quarter. In comparison, Instagram had only 55 percent growth. And while Instagram still has more advertisers than Snap, the gap is narrowing. Instagram has less than twice as many advertisers as Snap right now at 4C.

Advertisers say they like some of Snap's new ad features, like the ability to track what people do off Snapchat. Companies also say they are interested in Context Cards, which allow third-party businesses to offer services in app. And Snap is used by a different group of people than Instagram Stories.

"The people who are using Instagram Stories heavily aren't the ones who use Snap heavily," said 4C chief marketing officer Aaron Goldman. "If you were on Instagram before its likely to keep you there, but you're not seeing people switch from Snap to Instagram."