Photo messaging service Snapchat is expected to bring in over $1bn (£744m) in ad revenues next year, around two per cent of all social network ad dollars in the US, as more brands turn to the service to reach the crucial millennial audience.
Despite initial criticisms of its limited and costly ad offerings, Snapchat has seen explosive growth in ad revenues, and will continue to see increases for the near future, with eMarketer predicting the company will generate around $1.76bn in revenues by 2018.
"Advertisers are attracted to Snapchat for its broad reach among young millennials and those in Generation Z, which are valuable demographic groups for many businesses," said Cathy Boyle, principal analyst at eMarketer. "To engage those often hard-to-reach consumers, Snapchat has expanded its advertising portfolio over the past year to include a wider array of video ads, and more sponsored geofilters and sponsored lenses."
In the US, Snapchat's Discover channel of curated content generates the largest share of ad revenues, around 43 per cent. However, that is expected to shift next year, with Stories overtaking as the dominant source of revenues.
The growth will see Snapchat capturing 2.3 per cent of all social ad spending in the US, a reasonable slice for an ad platform that only launched in mid-2015. However, the app commands a 31.6 per cent share of social network users in the US, suggesting that marketers are dramatically undervaluing the app at the moment. Snapchat's limited targeting and measurement tools are one of the primary hurdles to increasing its ad buy share even more dramatically.
"Snapchat has improved its targeting capabilities and partnered with 11 measurement firms to address the concerns voiced early on," said Boyle. "What it has yet to prove is whether it can consistently deliver a better return on investment for advertisers than other social networks."
One major question for the firm in the years ahead are how it will develop its advertising offering internationally. Currently, it derives 95 per cent of its ad revenues from within the US, but as it begins to monetise users in other countries, that is expected to shift, with around a quarter of ad revenues expected to come from outside the US by 2018.