How Snap made a stunning comeback with ad revenue up 62{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}

• After some rocky years post-IPO, Snap is winning back users and advertisers.
• The company expanded its ad formats, upped its service to marketers, and cozied up to creators.
• 22 people close to Snap charted the key moments in its turnaround.
• Visit the Business section of Insider for more stories.

Last summer, as advertisers boycotted Facebook and other social platforms over their handling of hate speech and misinformation, Snap went on a charm offensive. 

The company’s chief business officer Jeremi Gorman called a meeting with some of her top ad sales aides, including VP of Americas Sales Peter Naylor and VP of Global Agency Partnerships David Roter. Within a week, they’d made calls to close to 100 top marketers at brands and ad agencies, pitching the Snapchat app as a brand-safe platform with no tolerance for hate speech.

“There was this tipping point of [advertisers saying] ‘I’m going to boycott company X and Y, or I’m going to boycott all of social media’ — and that was a kind of spark for us,” Gorman told Insider.

The move appears to have paid off.

Snap not only convinced several advertisers to try Snap for the first time but persuaded existing advertisers to shift more of their spend to Snap, she said.

Almost half (47{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}) of Snapchat’s advertisers in the fourth quarter of 2020 were new to the platform, and 53{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} of advertisers renewed their spend in the same period, according to data intelligence firm Mediaradar.

“The best part was that they came, they got results, and they stayed,” Gorman said.

Snap just reported its biggest quarter as a public company, clocking in $911 million in revenue in the last three months of 2020, up 62{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} on the year-ago quarter — blowing past analyst estimates. Its stock in 2021 has been trading at all-time highs. Last month, Snap execs said at its first annual investor day that it expects to drive multiple years of 50{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}-plus revenue growth. Analysts are firmly on board.

The tenor around Snap wasn’t always this buoyant. 

After the app’s high-profile IPO in 2017, user growth stalled. Then some users bailed over a rushed redesign. Snap was reporting big quarterly losses and revenue well below expectations. A rash of executives left. 

Snap has since reversed the user growth slump. It’s added ad formats and ramped up in areas like augmented reality, gaming and e-commerce. It’s introducing new shows and publisher content and cozying up to influencers.

Insider spoke to 22 Snap employees, former employees, ad buyers, and other experts about Snap’s advertising turnaround. They told the story of a young tech startup growing up and learning to cater to advertisers.

Snap barged onto the advertising scene

Shona Ghosh/Business Insider

Snap, which ran its first ads on the Snapchat app in 2014, didn’t immediately jibe with Madison Avenue.

Sir Martin Sorrell, the former CEO of advertising giant WPP, first met Snap founder Evan Spiegel in 2015.

Over lunch at Soho House in Chicago, Spiegel pitched Sorrell on getting WPP clients to buy Snapchat ads. Snap was seeking up to $750,000 a day from advertisers, then-enormous commitments for such a new platform.

“Most of our clients said, ‘Where’s the data?’— so it was quite difficult to do that” at the time Sorrell, now executive chairman of digital ad firm S4 Capital, said. Other buyers too were reluctant to spend so much on a platform that, relative to Google and Facebook, had a very basic measurement offering, Adweek reported in 2015. 

Jonathan Nelson, CEO of ad holding group Omnicom’s digital wing, recalled his first visit to Snap’s first office in Venice, California. He said the office environment and sales effort were the typical chaos of a startup.

“I remember saying to them: ‘You’ve got to dedicate account people to us; you’ve got to connect the data sources up; you’ve got to get audited; you’ve got to get your pricing straight,'” he said. “Whether you’re Yahoo, Google, Facebook, Instagram, Snap, or Pinterest, everybody goes through the same curve: If you want to be a public company, you’ve got to grow up.”

Snap’s strategy to grab advertisers’ attention in those days was to go big and brash.

The startup picked the Cannes Lions festival, the ad industry’s annual summer boondoggle on the French Riviera, to make a big splash. In 2016 it planted a giant billboard emblazoned with its “Ghostface Chillah” logo on the Palais building, one the festival’s most busy thoroughfares. At an invite-only space around the corner, butterflies were released into the air each hour as guests sampled rosé and macarons.

The following year it erected a yellow, Snapchat-branded ferris wheel in front of the Palais that siphoned attention away from the building’s billboards.

“They were definitely in the imperial phase of, ‘We are a true competitor to Facebook’,” in the early years, said Noah Mallin, an agency veteran and now chief of brand strategy at social content company IMGN Media.

Snap stopped being special

Michael Kovac/Getty Images; Francois Mori/AP

Facebook was quick to recognize Snap’s threat to its business. After unsuccessfully trying to buy Snapchat for $3 billion, Mark Zuckerberg decided to copy it. 

In 2016, Facebook-owned Instagram launched Instagram Stories, a replica of Snap’s core Stories feature. Instagram Stories Ads soon followed and Stories have found their way into other social platforms.

“Right away, the old Snap became almost a commodity where there are multiple social platforms who could do what they were doing,” said Alex Stone, SVP of advanced video and agency partnerships at media agency Horizon Media.

Snap was falling short of Wall Street forecasts quarter after quarter, and user growth slowed. Emulating other platforms, Snap launched a self-service ad buying tool to lure more advertisers, but the supply-demand nature of this auction-based ad model led ad prices to plummet some 60{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3}.

Spiegel pledged an app redesign but when it arrived, that bombed too. Users revolted and some left. 

“Sooo does anyone else not open Snapchat anymore?,” tweeted Kyle Jenner in February 2018. 

Snap desperately needed to pivot in order to keep advertisers on board.

Snap cranks out new ad products

American Eagle/Snap

In late 2018, Snap trumpeted two big-name hires: Jared Grusd, most recently CEO of The Huffington Post, as chief strategy officer, and Amazon ad vet Jeremi Gorman as chief business officer.

Gorman overhauled Snap’s sales team and in a few short months, turned its regional structure into teams built around verticals like entertainment, retail, restaurants and packaged goods. She also put clients into three buckets — large enterprise brands; direct response or performance advertisers; and small and medium-sized businesses — to better serve them, Gorman said.

Snap added measurement tools and ad formats like unskippable 6-second “commercials” and more than a dozen augmented reality products for businesses that let users virtually try on and buy items like nail polish and shoes. 

Its self-service ad platform is now a key growth driver and ad buyers say its sales teams have become almost as hands-on as the much-bigger Google and Facebook.

In some cases, Snap will bring together its product and sales teams to develop custom ads for clients. When Universal Pictures wanted to take over the entire app and run various different ads at once, for example, the teams developed a new commercial product called “Platform Burst” within weeks.

Direct-response advertising — meant to drive immediate action — has become a particular bright spot, accounting for more than half of total revenue, more than double the share in 2018, Snap said in February.

American Eagle Outfitters was trying to grow 2020 holiday sales after store traffic took a hit during the pandemic. The retailer created a virtual pop-up store on Snap that generated $2 million in incremental sales.

“I don’t get to sit in my seat for very long if I don’t drive business,” Craig Brommers, American Eagle Outfitters’s CMO, told Insider. “And Snap is right near the top when it comes to driving business.” 

Snapchat is on a charm offensive with creators

Snapchat

Snap has also cozied up to creators, key stakeholders for tech platforms, as it hopes to dial up the amount of time users spend on the platform and provide more opportunities to serve ads.

It added creator profiles in September to make it easier for users to promote their content to fans, not just close friends and family. In November it launched its TikTok-like Spotlight tab and pledged to pay creators $1 million a day to make videos for the feature. Spotlight hit 100 million global monthly active users in January, the company said. (TikTok said it had 689 million global users as of July last year.) 

Snap has also ramped up its outreach to influencers and their talent managers and agents.

In January, Quincy Kevan, a talent partnerships manager at Snapchat, dialed into a Zoom call to chat with a few dozen internet stars at the digital talent agency Collab who were eager to grab a piece of Spotlight’s million-dollar paydays.

“They took some time to educate us on the platform,” said TikTok creator Lonnie Marts, IIV, who joined the call from his home in Florida. “What kinds of things are allowed in the videos. What kind of things aren’t allowed in the videos. [Snapchat] likes to keep it PG-13,” he added.

The company has staffed up its talent management team, hiring people like Brooke Berry, who had run social media for the creator-event company, VidCon.

“The Snapchat team has done a phenomenal job of being hands-on,” said Max Levine, COO at Amp Studios, a digital content studio that represents internet stars like Brent Rivera, Ben Azelart, and the Stokes twins. Levine said he gets multiple texts a week from Snap’s head of creator partnerships, Francis Roberts. “He’s just been phenomenal to communicate with and he’s always checking in with me,” Levine said. 

Spotlight doesn’t make money for Snapchat yet, but the company clearly has bold ambitions for the feature. The company’s leadership team mentioned Spotlight 38 times during the company’s investor conference in February and said Snap plans to bring ads to the feature in the near future.

Advertisers are giving the app a second look

Ever since breaking out as a private, disappearing messaging app for friends, Snap has sought to play up its unique selling points.

In a pitch deck presented to UK ad agencies in February, for example, Snap emphasized its app reaches more 13- to 24-year-olds in the country than Instagram and Facebook and that its ads deliver a $3 return on ad spend, results it claims are “nearly 20{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} higher than digital norms.”

Buyers said Snap’s recent efforts have helped it graduate from marketers’ so-called “experimental buckets” to a more regular source of spending in the past year.

Amanda Grant, global head of social at WPP’s GroupM said the media agency’s annual client spend with Snap has been ticking up around 30{14cc2b5881a050199a960a1a3483042b446231310e72f0dc471a7a1eddd6b0c3} year-on-year since 2018.

“All of a sudden, Snap is on the consideration set again and maybe they weren’t a couple of years ago,” Grant said.

eMarketer/Insider Intelligence

Snap told investors last month that it had hit a new record number of advertisers in each quarter of 2020, and that it sees that trend continuing. It has also said that advertisers doubled the amount they committed upfront to spend on campaigns over the course of the year. It continues to push into augmented reality, which it sees as its most exciting long term bet, chief financial officer Derek Anderson said during its investor day in February. Its Maps feature also presents new advertising opportunities.

To be sure, Snapchat continues to face significant competition from Facebook, including its Instagram app, and Google, both of which have far larger reach among consumers and firmly remain must-buys on most advertising plans. 

TikTok is also quickly moving in on its territory, and has become wildly popular among its core base of younger users and advertisers alike. Whether Snap can convert its recent Spotlight momentum into lasting relationships with creators remains to be seen — particularly if the company tempers the $1 million-a-day payouts.

To meet its growth targets, Snap will have to invest heavily in product and content, which will likely weigh on profits, Arete Research analysts wrote in a February research note. 

Like other digital media companies, Snap’s ad business also faces challenges from Apple’s plan to restrict ad tracking in apps on Apple devices — though Snap’s first-party data could help it weather the changes better than other apps, Arete wrote.

And there’s always the threat of a new disruptive social network encroaching on Snap’s business, said Pivotal analyst Michael Levine. 

“I don’t think that they will ever be the scale of a Google or a Facebook, but I also don’t think that they’re trying to be Google or Facebook,” said Doug Rozen, the CEO of Dentsu Media Americas. “They are playing their own game.”