Good morning,
One more day to catch up on last week’s earnings before this week’s onslaught.
On to the update:
Snap Earnings
From the Wall Street Journal:
Snap Inc.’s revenue more than doubled in the second quarter and user growth jumped the most in four years, as people continued to flock to the social-media app despite a return to more normal daily routines. The company projects revenue in the current quarter will climb as much as 60% as its pandemic-era popularity continues, even as the health crisis wanes.
The Santa Monica, Calif.-based company said Thursday its closely watched daily active user figure reached 293 million in the second quarter, exceeding the roughly 290 million Wall Street was expecting. Snap had 238 million active daily users in the year-ago period. Snap shares were up more than 10% in after-hours trading on Thursday. They have more than doubled over the past year.
Snap’s user growth is indeed impressive, but it’s not quite right to attribute it to COVID; the service has been growing steadily since the end of 2018:
What was particularly interesting from the company’s earnings call was this bit from CEO Evan Spiegel’s prepared remarks about how user behavior has changed:
We have observed a number of changes in content engagement as we evolve our content products and manage through the mixed impacts of the pandemic. For example, global time spent watching content on Snap grew year-over-year, while lapping the boost in engagement we saw at the onset of the COVID-19 pandemic, but we have also observed a year-over-year decrease in daily time spent watching user-generated Stories created by friends, even as the number of daily viewers of that content has grown year-over-year. We believe this is due in part to a decline in the volume of daily Story posting activity on Snapchat coinciding with mobility restrictions and behaviors related to the COVID-19 pandemic, which reduces the amount of content created by friends that is available to watch. While it is unclear when these restrictions will end and how user behavior will evolve, we are seeing stabilization and early recovery in Story posting as some communities are reopening and reducing restrictions, and we are cautiously optimistic that this will lead to increased time spent watching Stories from friends as the world begins to open up.
That extra viewing time is instead going to Discover — Snapchat’s place for professionally-produced content — and Spotlight. Spiegel said with regards to the latter:
Additionally, we are seeing early promise in showcasing the best and most entertaining Snaps from our community on Spotlight. While we are still in the early phases of launch and iteration, we are excited about our learnings and progress so far. Engagement is growing rapidly as we roll out Spotlight worldwide, with Spotlight DAU growing 49 percent quarter-over-quarter, and average daily content submissions more than tripling when compared to the prior quarter. We are also seeing time spent growing rapidly, with daily time spent per user on Spotlight in the United States growing more than 60 percent in the last quarter, giving us additional confidence in our ability to build Spotlight into a meaningful business over time.
Spotlight is Snapchat’s TikTok clone; one can be copied, and one can copy. What is notable is how nicely Spotlight slots in to the Stories void: it’s much less of a problem for Snap if your friends don’t have much to say when the company can serve up what is probably better and more entertaining content from across its entire network. No wonder Instagram is reworking its app to surface the best content available, not simply content from those you follow.
Snapchat is still a social network, of course, as is Instagram; what is going to be interesting to watch is what advantage, if any, this gives the services relative to TikTok. At first it was a disadvantage, because both failed to fully grasp the opportunity presented by harvesting content from anywhere, not simply your social graph, but in the long run the social network aspects provide a degree of stickiness and daily usage that TikTok doesn’t have. Sure, there is a network effect between content producers and consumers — more of one leads to more of the other — but it is a much looser one than a network of people you are directly connected with.
Twitter Earnings
From Bloomberg:
Twitter Inc. reported second-quarter sales that topped analysts’ estimates, and gave a forecast for the current quarter that exceeded expectations amid global events such as the Olympics that drive advertising. Shares jumped about 5% in extended trading.
Revenue will be from $1.22 billion to $1.3 billion in the period ending in September, the San Francisco-based company said Thursday in a statement. Analysts, on average, projected $1.17 billion, according to data compiled by Bloomberg. Second-quarter sales jumped 74% to $1.19 billion from a year earlier, compared with analysts’ estimates of $1.06 billion. Twitter added 7 million new users in the second quarter from the previous period, bringing the company’s total audience to 206 million daily users. Those numbers were in line with analysts’ estimates. Twitter’s U.S. audience fell 1 million users to 37 million during the period ended June 30.
The company’s letter to shareholders once again emphasized the importance of Topics in driving Twitter’s growth:
Average monetizable DAU (mDAU) reached 206 million, up 11% year over year and up 7 million sequentially, driven by ongoing product improvements and global conversation around current events.
We continue to focus on making Twitter the best place for people to keep up with and discuss their interests. In Q2, we launched over 2,500 new Topics. People can now choose from more than 9,500 Topics across nine languages to stay up to date with what’s happening on Twitter. We also improved our ability to quickly connect people to the best conversations about their interests by better leveraging onboarding signals and introducing interactive feedback on Topic Tweets in the Home timeline. As a result, 41% of new customers in supported languages now follow Topics during sign-up, averaging ~14 Topics each. Based on the increased retention we’ve seen from ongoing relevance improvements in the Home timeline since 2017, we believe that providing new customers with a more personalized timeline on Twitter can lead to significantly higher retention.
The straightforward way to think about Topics is that they are a much more direct way for users to decide what they want to see in their timeline (as opposed to needing to rely on Twitter users as a proxy for their interests). From another perspective, though, Topics represents the TikTok-ization of the Twitter timeline, which is to say an increased focus on surfacing the best tweets from across Twitter, as opposed to the best tweets from people you follow.
This broad trend makes sense: there is an abundance of digital content, which means there is a massive amount of it. Most of that content is terrible, of course, but there is no reason why most people ought ever see most content: some tiny percentage is really good — better than even professionals might produce — and a tiny percentage of a massive number is, in absolute terms, very large. The mistake most networks made previously was artificially limiting the selection set to people you knew.
Additional Notes
The broader takeaway from these two earnings, though, is just how massive the digital advertising market is. We haven’t even gotten to Google and Facebook’s earnings yet, but it is not as if anyone thinks that they will do poorly because Snap and Twitter exceeded expectations — the opposite, in fact. This is not a zero sum market, which only emphasizes the extent to which it is difficult to claim that anyone in the space has anything approaching a monopoly on, well, anything.
Some additional notes:
First, both Snapchat and Twitter said the impact of Apple’s iOS 14 changes were less than expected, in part because the rollout was both later and slower than expected. In truth, though, Twitter was always going to be affected less than anyone else; CFO Ned Segal noted on the company’s earnings call:
The last thing I’d point out is just remember, at the end of last year, we were 85% brand, 15% DR, and there’s still lots of opportunity for us to better leverage first-party signal than we historically have. And so we’re probably coming at this from a different angle than many other ad platforms are, and we see opportunity where others may see it differently.
The biggest loss from ATT is a reduced ability to track conversions, whether those be an app install or an e-commerce sale; it works to Twitter’s favor that the company has been terrible at precisely that forever. Snap has done a better job building a direct response business — a bit over half of its advertising revenue comes from direct response — which means Snap is commensurately more vulnerable. Facebook, meanwhile, has much more direct response advertising than brand advertising, which means they are more vulnerable than either.
Still, Facebook will probably be fine this quarter (per Snap’s comments about not seeing much impact yet), and more importantly, the impact will be to somewhat reduce the magnitude of growth, not to actually reverse it — see the first point about the inexorable growth of digital advertising generally.
Second, I appreciated this distinction from Snap Chief Business Oficer Jeremi Gorman in response to a question about small and medium sized businesses:
I will take the small, medium business question. So specifically as it pertains to small and medium businesses, I think one of the things that can kind of get completed is that talking about local or is that talking about e-commerce and app install, et cetera. So I’ll give you an answer kind of in two parts there. But the first is really the small and medium businesses as it pertains to app install and e-commerce, so digitally native businesses to be specific…
Lots of companies *cough* Facebook *cough* are quick to highlight how important they are to small and medium sized businesses, and that’s true! I suspect, though, the company doesn’t mind that their invocation of that term leads most people to think about local businesses as opposed to game developers or Shopify merchants. The florist down the street is a much more sympathetic figure than a data-driven store advertising goods from China or a game developer selling gems; they are, though, all “small and medium sized businesses”.
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