A new report out this morning from analysts at eMarketer is forecasting explosive growth for Snapchat’s ad revenue by next year. The firm estimates the mobile social application will generate $366.69 million in 2016, but that figure will grow to $935.46 million by 2017 – a jump it attributes to Snapchat’s ability to reach younger millennials, a wider ad portfolio, and ad targeting improvements.
The $366.69 million in 2016 is a bit higher than the internal goals Snapchat had reportedly set for itself this year, according to a report from Recode this spring. Sources had told Recode that Snapchat was targeting between $300 million and $350 million in revenue this year, up 6 to 7 times from the $50 million it projected last year.
The $1 billion estimate, meanwhile, lines up with details found in Snapchat’s leaked presentation deck, which predicted revenues between $500 million and as much as $1 billion for 2017.
Snapchat has grown its ad business significantly this year, with new products like Snapchat Partners, its advertising API, which allowed Snapchat ads to be sold by third parties. eMarketer also cited a broader portfolio with a wider array of video ads, as well as more sponsored geofilters and sponsored lenses.
Currently, Snapchat’s Discover feature generates the largest share of the ad revenues (43%) in the U.S., says eMarketer, but it expects Stories to overtake Discover next year, to generate 37.8% of Snapchat’s U.S. ad business. The U.S. right now is also critical to Snapchat’s ad business, accounting for 95% of its ad revenues. But eMarketer estimates that a quarter of its ad revenues will come from outside the U.S. by 2018.
The company is also able to reach a coveted, younger demographic, the report says, which is why it’s poised for growth.
“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,” eMarketer principal analyst Cathy Boyle says.
Today, Snapchat has a 31.6% share of social networking users in the U.S., but only 2.3% of the social network ad dollars given that its ad platform only launched in mid-2015.
The challenge for Snapchat now is convince advertisers it can offer a better return on investment than other networks.
“Snapchat has improved its targeting capabilities and partnered with 11 measurement firms to address the concerns voiced early on,” said Boyle, referencing the criticism Snapchat’s faced initially regarding its ad offerings. She added that it faces challenges with Facebook and Twitter in particular when it comes to targeting and ad measurement.