As New Users Slow, Snap Claims 'Comfort' With Facebook's Imitation Game

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Evan Spiegel, co-founder and CEO of Snap Inc., stands on the floor of the New York Stock Exchange during the company's initial public offering on March 2.
Evan Spiegel, co-founder and CEO of Snap Inc., stands on the floor of the New York Stock Exchange during the company's initial public offering on March 2. Credit: Michael Nagle/Bloomberg

Snap Inc. is comfortable with Facebook stealing all of Snapchat's best ideas. At least that's the story it told during its first quarterly earnings call with analysts as a public company, finally subject to all the disclosure requirements that entails.

"If you want to be a creative company, you got to get comfortable with and basically enjoy the fact that people are going to copy your products, if you make great stuff," Snap Inc. CEO and co-founder Evan Spiegel said on Wednesday.

Facebook has adopted most of Snapchat's core features, grabbing onto Snapchat's focus on the camera as the centerpiece of the mobile experience and introducing Snapchat-like vertical video stories on all its properties. Facebook has also come out with an augmented reality program similar to Snapchat Lenses.

Spiegel acted nonchalant about the much larger company's relentless cloning, saying that's just what happens in tech.

"Just because Yahoo has a search box doesn't mean they're Google," Spiegel said.

It was a bold statement from an upstart that struggled in the first quarter by some lights. Snap Inc. reported $150 million in revenue, mostly from ad sales, up 286% from the quarter a year earlier but below analysts' expectations.

Growth among heavy users had begun to decrease as Snapchat headed into its IPO. It had 153 million daily active users at the end of September, a number that grew to 158 million by the end of December. Snapchat closed out the quarter with a little more quarter-to-quarter momentum, reporting 166 million daily active users at the end of March. But its year-over-year growth rate has now slowed for four straight quarters.

Snapchat makes the case to advertisers and investors that its audience doesn't overlap much with other platforms and engages more. On Wednesday, it said that its average user spends more than 30 minutes a day inside the app, up from 25 minutes in the quarter prior.

Consumers create 3 billion snaps a day, up from 2.5 billion six months ago, the company said.

"The question for marketers is whether there is inherent value in that creation growth and is that distinct from other platforms," said Noah Mallin, head of social at MEC North America. "I think the story they tell in coming weeks and products they roll out will have to make that case."

Snapchat is also spending a lot of money on all this activity, and pays Amazon and Google for hosting services. The company lost $2.2 billion in the first quarter, mostly thanks to paying its growing employee base. Excluding one-time costs related to going public, largely related to employee stock plans, the loss was $209 million. The company has yet to turn a profit.

Imran Khan, Snapchat's chief strategy officer, emphasized an advertising platform that is only just now getting started.

Snapchat began its ads program in 2014 and introduced an automated programmatic ad platform last year. Last week, it released a self-serve programmatic offering, which epxands the potential pool of advertisers.

But Snap Inc. on Wednesday would not say how many advertisers it has. It did say 20% of its ads are sold through the ad tech platform.

The biggest challenge, according to Spiegel, is still its distinctive ad format, which is vertical, made for phones' small screens. Brands still aren't sure how to shoot commercials for that style.

"The big issue with advertising over the next decade," said Spiegel, "is going to be education."

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