Snapchat is racing ahead, but still has come catching up to do.
Investors and marketers got a more complete picture of the platform — and its bruising competition with Instagram — when its parent company, Snap Inc., unveiled its filing for an initial public offering last week.
Since the company was founded in 2011, Snap’s trajectory as the hot new app has been closely followed for the medium’s ability to attract the younger demographic. And when it goes public on the New York Stock Exchange this spring, the company is expected to be rewarded with with a valuation of as much as $25 billion.
But for now, fashion-favorite Instagram is in the lead.
In its filing with the Securities and Exchange Commission, Snap reported 158 million daily active users. Instagram has about 600 million users in total and Instagram Stories, which Snap’s filing admitted mimicked Snapchat’s Stories feature, boasts 100 million daily active users after less than a year.
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Snapchat is expected to have 66.6 million monthly active users in the U.S. this year, compared with Instagram’s 76.2 million, according to eMarketer. By 2019, eMarketer projects Snapchat’s U.S. monthly user base will grow to almost 80 million, while Instagram is expected to grow to almost 90 million.
Snapchat almost exclusively makes its money from advertising and, in its filing, said it has been working to establish longer-term advertising commitments from brands. Still, most advertisers do not have long-term advertising commitments with Snapchat.
The company’s revenues tallied $404.5 million last year, up from $58.7 million in 2015, but the red ink is also growing. Snap lost about $515 million in 2016, compared with losses of $373 million in 2015.
EMarketer estimates that this year, Instagram’s ad revenue will reach $3.6 billion.
Although Snapchat’s user numbers are lower, in its filing, it made a strong case for why it is depending on user engagement to satisfy advertisers. According to Snap, its users are mostly between the ages of 18 and 34 years old. But users 25 and older visited Snapchat 12 times and spent 20 minutes on the platform every day in the quarter ending Dec. 31, while users younger than 25 visited more than 20 times and spent more than 30 minutes on it every day.
But is that what marketers care about?
“Snapchat is interesting because it does have a strong appeal with young people, but the underlying question is, will people who are older than that use it?” said eMarketer principal analyst Debra Williamson. “Snapchat may say they have higher engagement and more frequent usage, but you have to ask: ‘What are people doing? Are they using the areas that have advertising?’”
Plus, she said, “Teens may be heavy users but they aren’t making the purchases.”
And that’s where Snapchat might struggle to attract fashion advertisers.
“We know that Instagram has a far wider demographic base of women and fashion buyers. It’s not stuck with a limited demographic of 18 to 24-year-olds who don’t even live in the U.S., by the way,” said tech investor and finance expert Eric Schiffer, who is chief executive officer of private equity firm The Patriarch Organization. “Brands go where the money is.”
Schiffer predicted that Snapchat will carry on, but that Instagram will “bury it alive,” and remain the dominant application for fashion, especially after the addition of Instagram Stories.
Snapchat has been influential in the way that content is shared, and it’s been at the center of the move toward more authentic, relatable content while mobile video consumption is on the rise.
“They have been able to revolutionize communication for young people and revolutionize the way advertisers think of advertising with vertical, 10-second videos,” Williamson, of eMarketer, said. “Snapchat has been really creative in the way that it promoted communication. The way that it has changed communication for young people is similar to how Facebook changed communication a few years ago, so it’s important to watch.”
She said one reason fashion marketers tend to be loyal to Instagram is because it makes it easier work with the ever-important influencer, and from the influencer perspective, it’s hard to figure out how to attract followers on Snapchat.
Instagram has been attractive to fashion influencers because of its transparency in measuring factors such as number of followers, likes, content and comments, said Kamiu Lee, who is head of business development and strategy at Activate by Bloglovin. The firm found that 78 percent of women are more likely to watch their favorite influencers’ stories on Instagram compared to Snapchat.
With the IPO, marketers will be looking at ways that Snapchat might improve.
Forrester analyst Jessica Liu said she expects Snapchat will ramp up its ad offerings as it becomes beholden to shareholders. “I hope they divulge their ad products roadmap and how they will prove ad efficacy to marketers,” she said.
According to L2 Inc., research associate Camilla Opperman, Snapchat is becoming increasingly more popular among fashion brands, but that they have struggled to remain active on the platform. L2 found that while 56 percent of the fashion brands they tracked were on Snapchat in January 2016, a portion that had climbed to 76 percent by September.
Still fashion brands are relatively scarce on Snapchat’s Discover channel ads, with 7 percent of Discover ads from fashion brands in October 2016.
“That being said, some brands like Coach and H&M are succeeding on the platform by seamlessly transforming elements that are foundational to the fashion world, such as editorial content, and repositioning it on a Millennial-focused platform,” Opperman said. “At the end of the day, Instagram is still the fashion-world’s favorite platform. While both platforms are matching in their features, Instagram has a much larger audience reach and search visibility, and this will continue to be Snapchat’s biggest struggle in not only the fashion world, but across all sectors.”