Inside Snapchat IPO: The Pitch Is to Take TV Ad Dollars

The company highlighted the mobile ad market — and TV consumption patterns — in its Thursday SEC filing

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Snap Inc. may have described itself as a camera company rather than a social-media network in its IPO filing on Thursday, but the Snapchat parent buried another clue to its plans deep in the document

Snap’s pitch it to become the next destination for advertising dollars that might otherwise go to television — not that millennials and younger generations were even watching.

Substantially all of Snap’s revenue comes from advertising, which means it needs to provide its partners with a growing audience and efficient impressions to continue to make those arrangements worthwhile.

The company pointed out that mobile advertising is expected to nearly triple from $66 billion in 2016 to $196 billion in 2020, and connected that to a decline in TV viewership, which is especially acute among Snapchat’s core millennials, teens and tweens demographic.

“The shift in attention to mobile is more pronounced among younger audiences,” Snap said in the document. “According to Nielsen, people between the ages of 18 and 24 spent 35 percent less time watching traditional (live and time-shifted) television in an average month during the second quarter of 2016 compared to the second quarter of 2010. This represents our largest age group, with an average of 36 percent of our U.S. Daily Active Users between the ages of 18 and 24 in the quarter ended December 31, 2016, based on our internal data. Our next largest age group is 25-34 at 27 percent, followed by 13-17 at 22 percent. We think these users represent a big advertising opportunity for us because they are harder to reach on traditional media like television.”

Not only does Snap have a demographic that’s increasingly hard to hit through TV commercials, the company said that its ads have proven more effective than TV’s, which essentially carpet bomb everyone watching a show. Sure, promoting men’s grooming products during a football game is a relatively high percentage play, but it still reaches a bunch of women and other non-consumers, which represent wasted money from advertisers.

In the filing, Snap touted its work with market research firm Millward Brown to measure the effectiveness of its ad campaigns, and shared some examples

“A male body care company ran a Snap Ad campaign with a long-form video attachment to promote their deodorant for men and wanted to ensure that their campaign reached males between the ages of 13 and 34,” the company said in the filing. “Millward Brown verified that approximately 88 percent of the people who saw their Snap Ad were in the advertiser’s target demographic for the campaign.”

Snap also referenced a campaign that relied on sponsored geofilters — Snapchat filters that users can choose to add to their Snaps that are only available in specific locations.

“Wendy’s blanketed its U.S. stores with Sponsored Geofilters that promoted the Jalapeño Fresco Chicken Sandwich,” Snap said in the filing. “We used our Snap-to-Store measurement methodology to report that the Sponsored Geofilter drove over 42,000 incremental people to a Wendy’s location within seven days of viewing the Sponsored Geofilter.”

The company also brought up other successful ad campaigns based on different measurements, including a promotion for a new mobile game that drove 132,000 installs.

Snap paid $58.7 million to content partners in 2016 looking to entice more people to join its army of 158 million daily active users. Now, it hopes to woo premium advertisers — and it may have the demographics to do it.