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Shoot (NYSE: SNAP) already shares a good amount of DNA with TikTok, but has now even cloned elements of the increasingly popular social media app. The company behind Snapchat has introduced a new feature in its flagship app called Spotlight, which provides an endless feed of short videos for every user. The format holds great promise for Snap’s business and builds on existing behaviors in Snapchat.
Here are three reasons why investors should love Spotlight’s potential.
Image source: Getty Images.
Competition protection
TikTok appeals to a Snapchat-like audience. By copying its core features – the ability to embed music and an endless stream of content – Snap protects itself from losing engagement with TikTok.
Facebook he successfully implemented that strategy when he added Stories to Instagram. When Facebook launched Stories, the function wasn’t so much to win over Snapchat users as to prevent Instagram users from leaving or spending less time on the platform. Half a billion daily active users is a clear success.
Snap has managed to continue growing Snapchat’s user base over the past year despite TikTok’s growing popularity. The company recorded an average of 249 million daily users during the third quarter, up 18% year-on-year. Snaps also reported increased engagement in key metrics like Snaps created per user. This is despite TikTok adding more than 50 million monthly active users in the US from October 2019 to June 2020.
So Snap is doing a good job of growing users and keeping them engaged despite TikTok’s growth, particularly among young people. But adding Spotlight should keep them in the Snapchat app.
Greater potential for engagement
Spotlight has a lot of potential to increase engagement on Snapchat. It takes a behavior that many users already do within the app – it creates fun videos to share – and provides another format for sharing and viewing. This should lead to more people creating Snaps, and users spending more time viewing them (the $ 1 million a day giveaway to creators through the end of 2020 will also help fuel this engagement).
Snap has always boasted strong engagement among younger users, but that engagement is often focused on less profitable behaviors like private messaging with friends. More recently, it has increased engagement through features like shows in its Discover section, which are much easier to monetize. Snap should be able to monetize the time spent watching Spotlight at a much better rate than with private messaging.
Higher value ads
Spotlight is another area where Snap sells high-value ads like its six-second commercials. Management called the video ad format as one of the reasons it saw the average ad price rise for the first time since it started selling ads programmatically. Commercials are currently only featured in shows and games on Snapchat. The growth of Spotlight is also an opportunity to increase adoption of Sponsored Lenses, as it should drive more creators to the app.
The other opportunity is for Snap to expand shopping ads with Spotlight. TikTok has been exploring adding shopping features to its creator app to run commissions on selling products. It aims to follow a similar road map to its Chinese counterpart Douyin, and that’s part of what has attracted Walmart to try to acquire a stake in the company. Snap already has a partnership with Amazon which could develop with more purchasable features and could be based on its dynamic ads in the product catalog.
At first, Snap will aim to drive engagement with the format before placing advertisements, but the long-term potential is there. It looks for Snap’s investment in Spotlight and moderation of public content to reach its profits in the short term, but it should see continued growth in its user base and engagement as it defends against TikTok.
Over time, the tech company should see improvements in average ad prices along with impression growth that outstrips user growth when it opens ad inventory in the section. This should allow it to maintain the pace of revenue growth even as user growth slows as its platform matures over the next few years.
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