Leaked Data Reveals a Big Problem for Snap

There's no denying that Snap (NYSE: SNAP) has a lot of dedicated users on its Snapchat app. The average users spends 35 minutes per day in the app, and users under 25 spend over 40 minutes per day. That's even more than Facebook's (NASDAQ: FB) Instagram, which has seen tremendous engagement growth since copying one of the core features of Snapchat. Instagram says its users under 25 spend 32 minutes per day in the app, and those older spend 24 minutes per day.

But not all engagement is created equal.

It's much easier to monetize content consumption like scrolling through an Instagram feed than it is to monetize direct communication like sending a funny photo to a friend. When asked about how engagement is split on Snapchat during Snap's second-quarter earnings call, CEO Evan Spiegel dodged the question.

It turns out a lot more people are spending a lot more time creating and viewing snaps from friends than they are consuming content from Snapchat's Discover section, according to data leaked to The Daily Beast.

What a Discover-y!

Discover is one of Snapchat's biggest platforms for advertising. It features curated content from publishers such as Buzzfeed and ESPN, and it splits ad revenue with the publishers. When Discover first launched in 2015, Snapchat was asking advertisers to pony up a minimum of $750,000 for one day.

But ad prices have come down since then, and with the rollout of the self-serve platform, ad pricing is falling further toward market value. And the leaked data indicates the market value might not be very high.

Less than 20% of daily users check out the Discover section on most days. That's 35 million on a good day.

That number might decline further with the release of Snapchat's redesigned app. The new app will split Discover into its own section, separate from user-generated content. And since it's quite evident most users are only interested in Snaps and Stories from their friends, the Discover section could get ignored entirely.

Snap has seen even worse engagement on its relatively new Snap Maps feature. Snap Maps allows users to find Snaps from areas nearby by using a map. It was supposed to be an answer to Instagram's Explore tab. Except nobody's using it. Just 19 million used it on an average day in September. What's most disappointing is Snap Maps provides an excellent advertising opportunity if it can reach more users.

The good news: Stories

There is some good news in the data: Snapchat Stories is a hit.

Between 140 million and 145 million users view Snapchat Stories on any given day. That's still less than half of Instagram's 300 million Instagram Stories users, but it's a much higher percentage of Snapchat users than Discover.

Snapchat is able to monetize stories through Snap Ads, similarly to Discover. Unlike the Discover section, Snapchat doesn't have to pay for the content. All things considered, Snap would probably rather have users spend time viewing Stories than viewing Discover if it had to choose.

In fact, more users are opening Snapchat to view Stories than they are to send or receive individual Snaps. Just 120 million to 130 million users create Snaps on a typical day. Slightly fewer view Snaps.

Still not monetizing direct communication well

Spiegel was keen to point out that even if users spend a lot of time communicating directly with one another instead of viewing feeds of content, it's done a better job at monetizing communication than competitors. Facebook, for example, has notably struggled to monetize its messaging apps.

But Snapchat's sponsored geofilters and sponsored lenses -- which overlay graphics on pictures -- aren't seen by very many users. Just 1 million to 3 million people actually use a sponsored geofilter on the average day and 1 million to 5 million use a sponsored lens. Total viewership (including repeat viewers) for sponsored geofilters is less than 100 million on most days and less than 50 million for sponsored lenses.

It's no wonder many advertisers are disappointed with the return on investment they get from buying ads on Snapchat.

The leaked data shows exactly what many people expected already. Most time spent on Snapchat is spent communicating with friends, not discovering new content from Snapchat's other features. The app redesign may exacerbate that problem, and its not clear if there's any solution.

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Adam Levy has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Facebook. The Motley Fool has a disclosure policy.