The transformation of advertising business shows results, Snap welcomes another major change: heavily betting on AI+AR

According to the Zhitong Finance and Economics APP, Evan Spiegel, co-founder and CEO of Snap (SNAP.US), stated that he is increasing investment in integrating artificial intelligence and machine learning into Snapchat to make users more interested. This is the next major transformation for the company after years of comprehensive reform of its advertising business.

Spiegel said, "Everyone recognizes that we have fallen behind in machine learning, which is reflected to some extent in our business performance." "We need to improve in this area, gather some of the most senior machine learning experts, discuss how we can reach the most advanced level, and truly invest in it."

Snap has been striving to adapt to the significant changes in how people use social media apps and the demands of advertisers. In recent years, Snap has reformed its advertising business.

Now, the company is investing in the development of machine learning, artificial intelligence, and augmented reality (AR) features, which benefit Snap's advertising business and user subscriptions. Snap is not relying solely on internal development like Alphabet or Meta Platforms, but is collaborating with large tech partners such as Amazon and Google under Alphabet for cloud cooperation, and is committed to product innovation.

However, Snap expects to continue investing approximately 84 cents per user per day in infrastructure alone each quarter. According to Bloomberg's calculations, this amounts to around $1.5 billion annually, slightly higher than half of the annual operating expenses.

Direct Advertising

Snap has shifted from focusing on brand advertising to direct response (DR) advertising, which can prompt people to make purchases or download apps more quickly - this is more technically challenging but also more profitable.

Reform comes at a cost. Snap's stock price has dropped by over 70% from its peak during the pandemic, but the company has delivered on Spiegel's promise of improvement. After experiencing revenue declines in the first two quarters of 2023, Snap's new advertising products are gaining popularity. Snap has returned to double-digit growth, and analysts expect this year's revenue to reach an all-time high. Following the positive quarterly earnings report released last month, the stock has risen by over 71% compared to a year ago.

Following the growth in advertising revenue, Snap plans to expand its content products and augmented reality experiences, and drive new product experiences.

Snap aims to enhance the recommendation algorithms for its Stories and short video app Spotlight. The next major move for Snap is to integrate these two products. Spiegel said, "I think this will help people discover our content on our service, so this is an important priority." Spiegel believes that augmented reality has great prospects because it can "integrate with the world and share together." "Many of the things we focus on are currently impossible with technology. So, whether it's virtual reality (VR) headsets, computers, or smartphones, I think people will really be isolated by the technology products they use today. We look forward to a future where people will play, learn, and work together in the same physical shared environment, but this is achieved through augmented reality."