Social Media 3Q20: How Snapchat and Pinterest Crushed Expectations
An article by • Published Nov 16, 2020
Snapchat ($SNAP) kicked off the 3Q20 social media earnings with a bang, with year over year revenue growth accelerating to 52% from 17% in 2Q, crushing consensus estimates calling for 24% growth.
SNAP's results on October 20 lifted the shares of social media peers Facebook ($FB), Twitter ($TWTR), and Pinterest ($PINS), raising expectations for big beats across the sector.
The next to report was PINS, which lived up to the hype as it reported that revenue increased 58% year over year in the third quarter, up from 4% growth in the prior quarter. PINS stock jumped 48% the day following the news.
FB and TWTR also beat on both the top and bottom lines, but the beats were not as emphatic, and the underlying KPIs were not as strong.
Here's a look at the KPIs of these social media companies, accompanied by management comments on what drove the 3Q20 results.
In 2Q20, social media companies had reported a sharp slowdown in revenue growth even as user growth and engagement remained strong.
In the third quarter, SNAP and PINS reported continued strength in user growth — SNAP DAUs increased 5% sequentially and 19% year over year, whereas PINS MAUs increased 6% sequentially and 37% year over year.
FB's total DAUs increased 2% sequentially and 12% year over year, but DAUs in the US & Canada region for the first time since 4Q17. This was with the company's , which called for the number of users to be flat to slightly down as lockdowns eased in developed markets.
Perhaps the most surprising user growth numbers came from TWTR, which reported that its mDAUs increased by just 1 million to 187 million in the third quarter, a less than 1% sequential increase. This was a disappointing number, especially following the 20 million net mDAU adds in the previous quarter. Responding to an analyst question on the sequential increase in mDAUs, TWTR CFO Ned Segal had this to say:
As much as we would all like to see [user growth akin to 2Q20] happen every quarter, and then maybe what some of you had modeled, it also may not be how things play out as a pretty unique time in the world. The great news is that we're doing a better job of retaining those new and reactivated accounts due to the ongoing product improvements that Jack went through earlier.
Growth in average revenue per user (ARPU) across the companies bounced back sharply after the drop in 2Q20 as advertisers increased spend.
SNAP reported the largest growth in ARPU at 29% year over year, followed by PINS at 14% and FB at 9%. TWTR does not disclose its ARPU — for the purpose of this chart we calculated the ARPU as total revenue divided by quarterly mDAUs. Although the year over year change in Twitter's ARPU improved this quarter, it remained negative as Twitter's user growth is concentrated in low-value international users.
Ad pricing also improved in the third quarter — FB reported that change in average price per ad improved to year over year from , whereas TWTR reported a in its cost per engagement metric.
SNAP reported that it's average eCPM, a measure of ad pricing, year over year in 3Q20, marking the first time the company has observed an increase in this metric since going public in March 2017.
SNAP and PINS both called out improved efficiency in their ad platforms which helped drive increased ROI for advertisers along with better ad pricing for their platforms.
SNAP while eCPMs for ad inventory monetized via pixel-verified purchases increased 71% sequentially in Q3, cost per purchase for advertisers rose just 1% over that period.
PINS they were seeing more efficient spend through on existing budgets after it launched automated bidding for conversion objectives in July. PINS the majority of early adopters of oCPM automated bidding had increased their budgets on the platform.
Improving ad targeting and relevance is a critical driver of returns for digital ad companies as it allows them to deliver deliver on performance objectives with fewer impressions, thus delivering attractive return on ad spend for advertisers even as ad pricing goes up.
Strong user growth combined with a sharp increase in ARPU meant that PINS reported the strongest revenue growth in 3Q20 at 58%, followed by SNAP at 52%, FB 22% and TWTR 14%.
Now let's take a look at management comments around some of the drivers behind these KPIs.
Bounce Back in Advertising Demand
Advertisers had reduced spend in 2Q20 as businesses digested the first full quarter in the post-COVID world and adjusted to some of the social unrest in the US. However, in the third quarter, social media companies reported a strong snap-back in marketing budgets.
Here are some management comments describing the advertising environment in the third quarter:
The acceleration in advertising revenue growth from Q2 to Q3 was largely driven by strong advertiser demand resulting from the accelerated shift from off-line to online commerce that we saw in connection with the pandemic.
We saw a broad-based global rebound, driven by an upswing in advertiser sentiment for digital ads in general and for Twitter’s solutions, the resumption of more events and product launches, and continued strength in markets that saw earlier recoveries from the pandemic.
As businesses adapted and began to look for opportunities to increase their marketing budgets in Q3, we were pleased to see existing advertisers resume and even increase their budgets as well as new advertisers allocate spend to drive real business value via our self-serve ad platform
In Q3, we saw a return of demand from large brand advertisers who paused or reduced spend during Q2 as well as the acceleration of strong demand from mid-sized and small advertisers seeking conversions.
Performance-based Ads Are Thriving
FB was among the pioneers of performance objective based targeted ads due to which it has attracted a large number of SMB advertisers. Over the past months, FB's social media peers, especially SNAP and PINS, have been investing in technology to improve their optimization and measurement capabilities to help advertisers achieve performance-based objectives and measure the ROI on their goals.
Both SNAP and PINS specifically called out investments in their self-serve platform and their ability to help advertisers to deliver ROI against performance objectives as key factors in their performance this quarter:
It was our investments in our self-serve ad platform and our ability to service our customers during a challenging time that allowed us to onboard a record number of advertisers this quarter. Ultimately, all advertisers set their budgets based on performance, be it brand affinity, purchases or app downloads, and we continue to prove the efficacy of our ad platform by helping our advertising partners achieve their goals.
...advertisers are telling us that ads are working...due to the investments we've made in technology that make it easier for advertisers to hit their goals on the platform...what we're hearing is that returns accountable performance formats that drive measurable conversions and online sales, particularly in the mid-market segment, are a sweet spot for us.
TWTR also said that revenue from performance products than overall revenue. However, Twitter remains well behind its peers when it comes to performance based ads, especially those relevant to ecommerce where PINS and SNAP are thriving. In the as well on the earnings call, CEO Jack Dorsey admitted that direct response advertising is the larger, faster-growing, and more resilient part of the digital ads TAM, and TWTR is trying to improve its ad products to "move down the funnel":
DR is the larger and faster-growing part of the digital advertising TAM. And although we've got website clicks and app install ads today, and that actually grew faster this quarter than overall ad, albeit against easier comps. But we know that there is work for us to do to move all the way down the funnel to give advertisers to just reach their customers and sell something to them on Twitter.
Peers Saw Benefit From Facebook Advertiser Boycott
Earlier this year, many big-name advertisers including global brands such as Disney, Coca-Cola, and General Motors announced that they were pausing or reducing spend on Facebook due to concerns about hate speech and divisive content.
SNAP and PINS specifically called out the benefit from this advertiser boycott of Facebook as one of the factors that drove their third quarter results:
As brands and other organizations used this period of uncertainty as an opportunity to evaluate their advertising spend, we saw many brands look to align their marketing efforts with platforms who share their corporate values...we believe that the customer service our teams provided, the alignment on our brand safety principles, and the strong ROI that our advertising partners achieved, all contributed to our growth this quarter.
...we continued to benefit from marketers who are prioritizing positivity and brand safety. Advertisers tell us that Pinterest is brand-safe relative to other consumer Internet platforms, and we benefited from this in Q3
TWTR management did not directly call out the FB advertiser boycott as a tailwind in prepared remarks. In response to an analyst's , management said that their
On the FB earnings call, Mark Zuckerberg spent the initial part of his prepared remarks to talk about the steps the company is taking to combat misinformation and protect the integrity of elections. However, there was no discussion on the call on the financial impact of advertiser boycotts.
FB continued to emphasize that a vast majority of its advertisers are SMBs, and the number of advertisers on the platform continue to increase. FB now has over advertisers across its services, up from 8 million in 1Q20. The number of businesses using FB's free tools increased to more than in the 3Q20, up from 140 million in the first quarter of the year.
While commenting on the outlook for the fourth quarter, companies cited macro uncertainty due to Covid-19 and the U.S. election as key external factors that could affect performance.
FB said that it expects DAUs and MAUs in North America to be "" compared to 3Q, a continuation of the trend we saw in the third quarter. They expect 4Q year over year ad revenue growth rate to be the reported 3Q rate of 22% driven by the holiday season advertiser demand, and expect other revenue to strong orders for Oculus Quest 2.
TWTR did not provide a formal revenue guidance for 4Q, instead noting that ads revenue was up 19% in the last three weeks of September, and they see no reason why "."
SNAP said that assuming the current favorable conditions continue to persist and holiday season materializes in line with prior years, they expect year over year revenue growth of in Q4. They expect user growth momentum to continue in 4Q with year over year to 257 million, in line with the growth rate in 3Q.
PINS management gave the most bullish guidance out of the four companies discussed — they expect year over year revenue growth rate to in 4Q. In addition to the , PINS cited advertisers potentially ending the Facebook boycott following the end of the U.S. election cycle and shifting spend back to Facebook as a potential external headwind in 4Q. Furthermore, PINS expects from about 4 million MAUs that they estimate turned to Pinterest in 3Q only for iOS 14 digital wallpapers.