How Snapchat Makes Money

Social networking giant Snap (SNAP), describes itself as a camera company. That's because its flagship product is a camera app called Snapchat that allows users to connect with family and friends, exchange photos (or Snaps) and videos (or Stories), and chat.

Founded in 2010, the company went public through an initial public offering (IPO) in March 2017. It generates all its revenue from Snapchat advertising. But the company faces significant competition from other major technology companies like Apple (AAPL), Meta (META), Alphabet (GOOG/GOOGL) subsidiary Google, and X platform (formerly Twitter).

Snap's Financials

Snap announced financial results for the second quarter of 2023 on July 25, 2023. Quarterly revenue came in at $1.07 billion for the quarter, which was a 4% drop from the $1.11 billion reported during the same period in 2022. The company reported a net loss for the quarter of $377.31 million compared to a net loss of $422.07 million in Q2-2022.

The majority of Snap's revenue comes from North America. This geographic segment includes the Caribbean and Central America under the company's financials. The U.S. accounts for almost two-thirds of this segment's revenue. This is followed by Europe, which also includes Russia. It's important to note that Snap halted advertising to Russian and Belorussian entities.

Snap's daily active users grew by 50 million or 14% to 397 million during the quarter from the same period in 2022.

Snap's Business Segments

Snap does not break out in its financial metrics by business segment. Advertising sales are the major driver of the company's revenue. The company also introduced other revenue models, including a subscription model and devices.

It also offers hardware devices, called Spectacles, which are glasses that connect to the Snapchat app and allow users to make Snaps and record videos. The latest version provides an augmented reality (AR) overlay for the user's view.

The Snapchat app can be downloaded to mobile devices free of charge. All of its features are accessible for free, including creating Snaps, conversing with family and friends, and finding friends' Stories on the Discover feature. These features are designed to drive user engagement, which in turn helps to attract advertisers.

Snap Ads allows advertisers to tell stories in a format comparable to that provided for Snap's users. It includes additional features, such as long-form videos, links to an advertiser's website, or to a download of an advertiser's app. AR Ads include Sponsored Lenses and Sponsored Filters. Sponsored Lenses provide branded augmented reality experiences. Sponsored Filters offer entertaining overlays that allow users to interact with an advertiser's brand.

Snap’s Recent Developments

The company projected increased growth during the third quarter of 2023 with the expectation of adding more daily average users. Snap said it would continue to improve its advertising platform, which will help it move through a "rapid transition" period. It expects financial growth to remain negative or flat on a year-over-year basis.

On March 1, 2022, Snap announced it halted all advertising on its platform in Russia, Belarus, and Ukraine as part of an attempt to curb media disinformation amid Russia's invasion of Ukraine. The company said that it was also stopping its advertising sales to all Russian and Belarusian entities as well as complying with all sanctions imposed on Russian businesses and individuals.

How Snapchat Reports Diversity and Inclusiveness

In keeping with our commitment to diversity, here's a look at how Snapchat pursues transparency, inclusiveness, and social responsibility. The company's third annual diversity report, published in 2022, expands Snap's commitment "to inspire empathy, redesign systems, and drive accountability through our people, products, partners, and our wider tech ecosystem."

The report lists steps the company has taken and plans to take to train employees and educate Snapchat users on diversity and inclusion and to ensure Snap's workforce and leadership reflect those values.

The proportion of female Snap employees increased from 34.9% to 35.6% in 2022, while the proportion of Black employees dropped to 4.3% in 2022 from 5.2% in the previous year, and that of Whites fell from 42.3% to 40;9%. Women made up 40% of Snap's 10-member board of directors in 2022. One director was Black and another identified as multiracial. The board diversity percentages were unchanged from the previous year.

Whites accounted for 84.6% of executive leadership, which remained unchanged from the prior year. The proportion of women in technology jobs at the company increased from 19.4% to 21.2% in 2022, while that of tech employees of Asian descent rose from 52.6% to 53.1%.

Snap's diversity goals for 2025 are to increase the proportion of under-represented U.S. racial and ethnic groups in its workforce to 20%, to increase the proportion of women in tech roles to 25%, and to increase the representation of women and underrepresented minorities in leadership roles by 30%.

The Bottom Line

Snapchat is one of the most popular social media apps, with 375 million daily users. Although the company has continued to grow, it has yet to earn an annual profit as it seeks to leverage its users to produce advertising revenue.