Advertisers explain what Snap must do to squeeze more money from each user and match Facebook

Key Points
  • Snap needs to convince more advertisers to come on board to grow revenue.
  • However, the company needs to make improvements, including building its youth audience, investing more in advertising and engineering, and getting more advertisers to use and understand Snapchat.
  • It will also need more celebrities and influencers on Snapchat.
Snap back to reality

Wall Street is not happy with Snap right now. The stock plunged 20 percent after its first-ever earnings report Wednesday missed expectations.

With Snap's ad revenue projected by eMarketer to reach $1 billion this year, it can still be a strong digital advertising presence. The company only gets an average of 90 cents in revenue per user. For comparison, Facebook gets $4.23 per user as of this last quarter.

Here's what advertisers tell CNBC it needs to do:

Get advertisers to use and understand it

"Advertisers don't use it personally," said Matt Britton, CEO of marketing firm Crowdtap.

"Facebook took off when brand managers were using it to share pictures of Little League games with each other. They really need to educate advertisers as users, as consumers."

They also need to work on teaching advertisers what kind of ads work best.

Right now there's a "high barrier" to create ads, mostly because advertisers usually have to create something bespoke, which means higher costs, said Kieley Taylor, head of paid social for media agency Group M.

More data could help.

"Brands know they need to be able to tell stories in a different way, but they need to have a better understanding of [how to use] targeting and price points," she said.

Build its core youth audience

Competitor Instagram Stories is already more popular despite only launching in August, but Snap may be able to remain relevant if it keeps its in-demand younger audience.

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"The core audience from Snap is the reason why advertisers are there," said Chris Paradysz, co-CEO of PMX Agency.

Digital advertisers will be interested if Snapchat can slow its attrition rate and keep younger users engaged.

"Some of the more recent research shows there's not always the audience duplication across platforms among super heavily active users," said Group M's Taylor.

People are unlikely to move to another platform if they've already built an audience and community, she added.

Invest more in advertising sales and engineering

Advertisers want Snap to show that its ads can convert users into customers. It's implemented some tools including "Snap to Store" which shows if users end up at a store or other location after seeing an ad. It's also working with third-party ad measurement services like Moat and DoubleClick.

Still, it needs to do more to show how it ranks compared with other competitors, advertisers say.

Snap needs to bring in more advertising and ad tech veterans, said Harry Kargman, CEO of Kargo. Digital ad leaders Google and Facebook had the same issues at the beginning, but brought in advertising sales executives and engineers to build out their businesses.

"If you look at Snap's progression and the trajectory and its journey, they haven't been around as long, and frankly, I don't think Evan [Spiegel] was focused on revenue before they went public," Kargman said.

Get more celebrities and influencers

On different platforms like Instagram, Facebook or Twitter, you can judge someone's popularity by how many followers they have, how much time people spend looking at their content and how many people can see a single post.

You can't get that information from Snapchat right now. For someone trying to build an online presence, it can be a turnoff.

"Influencers use their number of followers and monetize on that [by showing advertisers how popular they are], but they can't see that on Snapchat," Crowdtap's Britton said. "That matters more than people think."

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