After weathering criticism of its initial ad offerings, Snapchat is poised for explosive growth in ad revenues in the coming years, according to eMarketer’s first forecast of ad revenues for the social platform. Worldwide, it will generate $366.69 million in ad revenues this year, with that figure jumping to $935.46 million in 2017.
“Advertisers are attracted to Snapchat for its broad reach among young millennials and those in Generation Z, which are valuable demographic groups for many businesses,” said eMarketer principal analyst Cathy Boyle. “To engage those often hard-to-reach consumers, Snapchat has expanded its advertising portfolio over the past year to include a wider array of video ads, and more sponsored geofilters and sponsored lenses.”
In the US, Snapchat’s Discover feature generates the largest share (43%) of the company’s ad revenues. That balance will shift next year, as Stories overtakes Discover as the dominant ad revenue source, generating 37.8% of the company’s US ad business.
While Snapchat garners a strong 31.6% share of social network users in the US, it only captures 2.3% of social network ad dollars, having launched its ad platform in mid-2015. It faces challenges as it competes with more established players Facebook and Twitter, particularly in the areas of targeting and measurement.
“Snapchat has improved its targeting capabilities and partnered with 11 measurement firms to address the concerns voiced early on,” said Boyle. “What it has yet to prove is whether it can consistently deliver a better return on investment for advertisers than other social networks.”
Snapchat currently derives 95% of its ad revenues from the US. However, as it begins to monetize users in other countries where it has a substantial user base—particularly the UK—the non-US share of its ad revenues will grow. By 2018, a quarter of its ad revenues will come from outside the US.
eMarketer built a Snapchat ad revenue model using our 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 Geofilters and Sponsored Lenses), and monetization assumptions for non-US Snapchat users. eMarketer also conducted interviews with executives at ad agencies, brands, and media publishers.