Snapchat is poised for “explosive growth” in advertising revenue in coming years, according to the first-ever forecast for the social media platform by digital research firm eMarketer.
Snapchat is expected to generate US$366.7 million in advertising revenue in 2016, jumping to nearly US$1 billion (US$935.5 million) by 2017. Revenues are expected to reach US$.1.8 billion by 2018.
Analyst Cathy Boyle said in a research note that advertisers are attracted to Snapchat’s “broad reach” among both younger millennials and those in Generation Z, which she called “valuable demographic groups” for marketers.
Boyle noted that Snapchat has expanded its advertising portfolio to include a broader array of video ads, as well as more sponsored geo-filters and sponsored lenses.
In the U.S., the platform’s Discover feature is responsible for nearly half (43%) of the company’s ad revenues, although the eMarketer report said that its Stories feature will become the dominant ad revenue source by 2017, generating 37.8% of its U.S. ad revenue.
Despite capturing 31.6% of social network users in the U.S., Snapchat – which launched its advertising platform in mid-2015 – currently captures just 2.3% of all social network advertising.
The eMarketer report said that the platform faces challenges as it competes against more established players like Facebook and Twitter, particularly in areas such as targeting and measurement.
Boyle said the company has yet to demonstrate to advertisers that it can consistently deliver a better return on investment than its social media counterparts.
Snapchat currently derives 95% of its advertising revenue from the U.S., but eMarketer says its non-U.S. share of revenues will grow as it begins to monetize users in countries where it has a substantial user base, most notably the United Kingdom. A quarter of Snapchat’s ad revenues are expected to come from outside the U.S. by 2018.
Snapchat’s Canadian advertiser roster includes Mac’s Convenience Stores, which used filters to enable users to “Frosterize” their face; QSR A&W, which used filters as part of its “Burgers to Beat MS” campaign; and Taco Bell, which used Snapchat stories to create a VJ search for millennials.
The research firm constructed its revenue models for Snapchat using proprietary consumer adoption estimates, monetization trends at similar social networks, monetization assumptions for different Snapchat ad products – including Snap Ads within Discover and Live story, sponsored geo-filters and sponsored lenses – and monetization assumptions for non-U.S. Snapchat users. The company also conducted interviews with executives at ad agencies, brands and media publishers.
