eMarketer Lowers Snap Ad Forecast

In its latest advertising forecast, eMarketer has significantly lowered its projections for Snapchat’s US ad revenues for 2018 and beyond, as an increasingly automated buying system brings down prices.

This year, Snap will generate $662.1 million in net digital ad revenues, lower than the $1.03 billion eMarketer projected in March. eMarketer now expects that Snap will not break $1 billion in US ad revenues until 2020.

The downgraded figures are mainly due to Snap’s shift to an ad delivery system that is about three-quarters programmatic. As a result, Snapchat’s US ad revenues will increase 18.7% this year, significantly lower than the 85.6% in 2017. However, growth will be higher again in 2019 and 2020 as the platform attracts more advertisers to bid up prices.

“Snap rolled out its programmatic ad platform in June 2017. While the transition to a self-serve format has increased the number of advertisers, it has also resulted in lower ad prices overall,“ said eMarketer principal analyst Debra Aho Williamson. “Some advertisers report strong ROI from programmatic ads on Snapchat, but many others remain skeptical. They are concerned about the size of Snapchat’s audience and feel that measurement and targeting still lag behind Facebook.“

The revenue adjustment now means Snap controls 0.6% of the US digital ad market, the same as last year, and below the 1% previously predicted. For comparison, Google and Facebook control a combined 57.7% of US digital ad spending this year (37.1% and 20.6%, respectively). As a result of the downgraded forecast, Snap will only capture 0.9% of the US mobile ad market this year, lower than the 1.4% previously expected. Snap derives its ad revenues entirely from mobile.

“We believe Snap’s transition to programmatic was the right move, since it makes it easier for advertisers to buy ads,“ Williamson said. “But Snap also needs to restore user engagement, after its worldwide daily active user count fell by 3 million in Q2. Usage declines are a big red flag for advertisers.“

Snapchat will still see usage gains this year. We forecast that it will have 84.8 million monthly active users in the US, up 7% over last year. By that metric, it will grow faster than both Facebook and Twitter user gains (both 0.9%), but slower than Instagram (13.1%).

Snapchat is the most popular app among teens. In fact, it will continue to add users ages 12 to 17, while Facebook will continue to lose users in that cohort. eMarketer forecasts that Snapchat will add 1.2 million new users in that age group by 2022, while Facebook will lose 2.2 million.