To fend off Facebook, Snap needs to prove that it can make more money with fewer users (SNAP, FB)

pulse

May 10, 2017 12:54 AM

Now that Snap is set to report its first quarterly earnings, investors are looking for evidence that there's enough room for it to grow in rich countries.

Snap Chief Strategy Officer Imran Khan is responsible for growing the company's fledgling ad business.

Last month, Snap found itself in the midst of a sudden controversy.

Its 26-year-old CEO, Evan Spiegel, was alleged to have said that he didn't "want to expand into poor countries like India,"

Snap quickly denied that Spiegel ever made the comments, but the damage was already done. Snapchat's app ratings in the Google Play store took a nosedive, and "BoycottSnapchat" quickly became a trending topic on Twitter in India.

Now that Snap is set to report its first quarterly earnings as a public company on Wednesday, investors are wondering if the company can grow its ad business and user base in the face of fierce rivals like Facebook. And they'll be looking to Snap for evidence that there's enough room for it to grow in highly developed, rich countries.

While Facebook builds drones to beam internet access to sub-Saharan Africa, Snap executives have frequently touted their app's popularity in North America and Europe, where the vast majority of advertising dollars are spent.

In Snap's initial prospectus filing from February, the company said that more than 60 million of its 158 million daily active users were in the US and Canada. That number is roughly a third of the 182 million daily active users Facebook has in the same region. And while Facebook commands nearly 2 billion monthly users, half of its $8 billion in revenue last quarter came from the US and Canada.

If Snap can prove that it's able to make more money off fewer users, it could curb the comparisons to Facebook that plagued Twitter during its early days as a public company. To do that, Snap will need to show that it can grow its average revenue per user (ARPU) even if its overall user growth continues to slow.

For the fourth quarter of 2016, Snap's global ARPU was $1.05 and $2.15 in North America. By comparison, Facebook's ARPU was $4.83 globally and $19.81 in North America during the same period.

Here are the expected numbers for Snap's Q1 earnings, based on analyst projections compiled by Bloomberg: