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S napchat is the engagement and revenue leader in consumer AR. This is driven largely from the high-frequency lens usage it’s been able to generate….and its ability to monetize. This stems from Snap’s AR focus, and the technology’s alignment with its core “camera-company” ethos.
Snap’s leading AR position also continues to be validated by performance indicators like advertiser ROI metrics. The latest figures were revealed in its recent Q1 earnings, where Snap announced continued user and revenue growth. This occurred in both AR and non-AR areas.
Before getting into the AR-specific growth metrics, what were its overall earnings highlights? For one, quarterly revenue grew 66 percent year-over-year to $769.6 million. Daily active users grew 22 percent year-over-year to 280 million. Snap projects $820-$840 million in Q2 revenue.
ROAS Revival
Moving on to AR-specific milestones, Snap landed several blue-chip brand AR campaigns including Gucci, North Face and American Eagle. The company points to pandemic-fueled (and permanent) shifts in advertiser demand to reach consumers in more virtual and immersive ways.
Drilling down to campaign results, Snap helped Dior achieve a 6.2x return on ad spend (ROAS) for its B27 sneaker try-on lens. It similarly helped Eyeglasses marketer Zenni Optical achieve a 6.2x ROAS in a similar try-on experience for the brand’s Valentine’s Day campaign.
Notably, Snap is also expanding into verticals beyond early-adopter segments like fashion & beauty. For example, consumer packaged goods (CPG) brands are increasingly launching lens campaigns. Among others, Yoplait’s campaign drove 40 percent of its Q1 incremental sales.
Snap also leaned heavily into LiDAR in Q1 — one of the first to do so. The AR-enabling tech now housed in higher-end iPhones was utilized for campaigns with North Face and Gucci. LiDAR will continue to unlock more compelling and robust AR campaigns as it phases into ubiquity.
Consumers likewise signal forward-looking usage growth for AR shopping. Citing survey data done in tandem with Deloitte, Snap Chief Business Officer Jeremi Gorman reports that 94 percent of consumers expect to use AR for shopping the same or more in 2022 than this year.
Demand Side
In all of the above milestones, a key underlying theme is Snap’s efforts to attract developers and brands. Snap started with seeding a critical mass of lens users, while it also cultivated Lens Studio as an attractive developer platform. Now it’s time to blitz ad monetization.
Panning back, this is all key to Snap’s AR flywheel effect. Robust lens libraries attract users and boost engagement. A growing audience then attracts lens developers which further expand the library and, in turn, more users. And all of the above attracts the real endgame: brand marketers.
Throughout that process, Lens Studio tools and workflows have gradually evolved, up to and including the current v. 3.4. Platform highlights and milestones in recent history include creator profiles, hand & body templates, Scan, Landmarkers, Local Lenses, Snap ML, and LiDAR.
But the biggest validation for Snap’s flywheel was evident in a nugget that was buried in its Q1 earnings: revenue growth is outpacing user growth. This is a strong sign that Snap is growing its revenue per user (ARPU) — a key performance indicator for ad-fueled social apps.
More importantly, ARPU has been an explicit goal of Snap CEO Evan Speigel as the company evolves as a business. As he told Goldman Sachs’ Talks at GS event in February of last year:
“Because our business is so new and young, if we look at the revenue growth at least in the near term, the next few years are more closely correlated with advertiser growth — spend growth and active advertisers […]. We’ve been really focused on growing users and growing engagement, and now we’re going to continue to do that but also learn how to grow the demand side of the business.”
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