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Will Snap be Able to Generate More Advertising Revenues?

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Snap Inc. (SNAP - Free Report) has been under pressure since the time it went public earlier this year. The company’s stock price has declined since then.

Snap suffered a major blow when Morgan Stanley, the lead underwriter of its public offering, downgraded the stock in July stating “we have been wrong about Snap's ability to innovate and improve its ad product this year.” The investment bank was worried about the company’s lackluster advertising products amid growing competition from Facebook’s (FB - Free Report) Instagram.

In March 2017, eMarketer trimmed its forecast for Snapchat’s 2017 advertising revenues by $30 million to $770 million.

In contrast, the firm expects U.S. digital advertising market to grow 16% year over year to reach $83 billion in 2017. Digital video advertising is also anticipated to witness annual double-digit growth through 2020.

Efforts to Monetize the Platform

Advertising is the primary source of revenues for Snap. The company’s goal has been “to put the power of our ad product into the hands of every advertiser, regardless of their size.”

In a bid to attract advertisers, Snap added three ad products in the month of May, namely Sponsor World Lenses, Audience Lenses and Smart Geo filters. The same month Digiday reported that Snap is offering discounts to lure advertisers. The company’s Snap to Store tool, launched in April, also helps advertisers track whether their ad campaigns are managing to attract users.

For buying video ads, Snap introduced the self serve Ad Manager in June. The company launched two more advertising tools called Snapchat Mobile Dashboard and Business Manager. Further, in order to woo advertisers, the company acquired Placed (in June), a startup specializing in measuring success of digital ad campaigns.

Earlier in July, Snap rolled out a tool namely Snap Publisher to help advertisers create their own ads.

Recently, the company announced the addition of 14 new Creative Partners “to provide advertisers hands-on support to plan, executive and optimize Snap Ads campaigns.” The company’s Snapchat Creative Partner program was launched in June.

Stiff competition from the likes of Alphabet (GOOGL - Free Report) , Microsoft’s LinkedIn and Facebook as well as smaller rivals like Twitter (TWTR - Free Report) in the digital ad market remains an area of major concern.

Further, user growth holds the key to attracting advertisers as they prefer established platforms. Thus, a slowdown in user growth rate may look unattractive to advertisers. Moreover, the company’s lack of popularity in the international quarters and its focus only on under-30 users also remain a concern. However, Snapchat is aggressively ramping up its original content efforts in a bid to attract new subscribers.

Snap, therefore, needs to pull up its socks to reap in the benefits of growing social media advertising, which is anticipated to outperform newspaper advertising by 2020 per advertising agency Zenith Optimedia.

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