Facebook is slaying the ARPU game, so Snap should lean into its camera

Monday, February 8, 2021 by Robinhood Snacks | Disclosures

Snap goes ham on AR filters

Filter wars... 2020 was a big year for social. It was how we connected, doom-scrolled, entertained ourselves, and tapped our worries away. Now that Facebook and Snap have dropped full-year earnings, we have proof: they both crushed it — but Snap is still a small fish compared to Facebook (think: Nemo vs. blue whale). In 2020:

  • Users: Facebook's daily users jumped 11% to 1.84B. Snap's jumped 22% to 265M. Wild stat: typical users opened Snap 30 times per day last quarter.
  • Sales: Facebook's ad sales popped 21% to $84B. Snap's sales soared 46% to $2.5B, as its active advertisers doubled from 2019.
  • Profit: Facebook's profit soared 58% to $29B. Snap has still never posted a profit, though its loss shrank to $945M.

You ARPUnny... One number fascinated us: ARPU (aka, average revenue per user). ARPU = a company's sales divided by its users. The ARPU gap between Facebook and Snap is massive — especially in North America, which makes up nearly half of FB's sales, and more than 70% of Snap's. In North America:

  • FB makes 10X more per user than Snap does. Last quarter, Snap's average revenue per daily user was $7. Facebook's was $70. Why advertisers pay more for FB:
  • FB has better ad targeting: it collects more user data (knows what you like), and it's older than Snap (knows what you've liked since you were 13).
  • It has billions of users (bigger reach potential), and they skew older than Gen Z Snap (bigger spend potential).

Snap should augment itself (AR-style)... Snap is proud of its "privacy-first" approach, so it likely won't collect more data to try to beat FB. But it can boost ARPU by making ads more engaging. One key way it's doing that: Augmented Reality. Snap launched AR ads with companies like Estee Lauder and Dior, letting you virtually try on lipstick shades and shoes. These shoppable lenses have attracted new advertisers during the pandemic. Snap calls itself a "camera company," and it's leaning into this identity to stand out to brands. What Snap lacks in data, it could make up for with creativity.