Snapchat beats expectations as shares rise 20%

08/02/2018

Snapchat has reported surging growth in users and revenue in its latest quarter, reviving hopes that it can compete with Facebook’s Instagram and sending its shares up more than 20%.

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Snap's sales climbed to $286 million in the fourth quarter, up 72% from the same period a year earlier, as the company transitions to an automated ad sales auction similar to Google and Facebook.

The company also showed signs of accelerated user growth. It added 8.9 million daily active users in the final three months of the year, more than any other quarter of the year.


It accomplished both feats while losing less money than expected. Snap's executives chalked it up in part to moderating headcount and not buying back employees' shares during the quarter.

"Our business really came together toward the end of last year," Evan Spiegel, the cofounder and CEO of Snap, said on a conference call with analysts Tuesday.

After struggling to grow its audience throughout the year, Snap unveiled a significant redesign in November intended to make its messaging service less confusing for users.

Spiegel said early feedback shows the redesign makes the app easier to user, "especially for older users." That could help Snapchat compete for more of a mainstream audience.

The redesign has been rolled out to about 40 million users so far, according to Spiegel, with plans to expand it to all users by the end of the first quarter.

Snapchat’s daily active users rose to 187 million in the quarter that ended Dec. 31 from 178 million in the third quarter, beating analysts’ average expectation of 184.2 million users, according to financial data and analytics firm FactSet.

Daily active users rose 18 percent from a year earlier, reversing a trend of slowing growth. The figure is closely watched by investors who hope user growth can be translated into advertising revenue.

Instagram, with more than twice the daily users of Snapchat and backed by Facebook’s large bank account, has threatened to stamp out its rival by copying features such as photo filters and disappearing slide shows.

Analysis

Aaron Goldman, CMO, 4C Insights, commented on Snapchat’s resurgence: “Snap benefited from some of the seasonality that's expected during the holidays as advertisers heavy up but also saw some new brands come in and test the platform as a place to engage hard-to-reach audiences. In November, Snapchat unveiled a redesign that separated out peer-to-peer interaction and curated/professional content. In fact, ad spend through 4C increased 29% in Q4 to close out the first full year of self-serve Snap Ads. This shows current users are happy to spend time leaning back and watching brand-safe videos even with ads interspersed throughout. More original content for Discover will only make the platform even more valuable as a complement to linear television, along with the ability to measure more on the platform."

“It’s time for brands to embrace each of the “social” platforms as unique advertising vehicles.”

Yuval Ben-Itzhak, CEO of Socialbakers said that it’s clear that the platform is still struggling to compete on the advertising platform, despite surpassing Wall Street’s revenue targets in its fourth quarter. Although Snapchat’s redesign at the end of last year took a step in the right direction, Socialbakers insists that the platform is still limited and is yet to leverage its full potential.

Yuval Ben-Itzhak said: “Despite growth expectation from analysts and a forecasted record of about $254.8 million in the fourth quarter revenue, Snapchat is still a long way behind its rivals for advertising dollars, Facebook and Instagram in terms of audience size. The lack of reach currently offered by Snapchat, especially outside of North America, remains a limiting factor for marketers looking to leverage the platform’s full potential.

While Snap’s redesign announcement for its Snapchat app last year was definitely a step in the right direction, offering marketers increased personalisation and relevance. However, in order to keep growing their user base, Snapchat needs to make sure they maintain the quality and relevance of their content, especially as they try to size up to Instagram. A drop in quality takes users’ attention elsewhere and Snapchat is currently facing that challenge. If the redesign delivers on its promise to serve quality content in a targeted way, it could prove to be just what Snapchat needs to increase eyeball time on the app. It could also be a great opportunity for marketers to reach and engage their audiences with well-targeted promoted content, while positively impacting Snapchat's bottom line.

Despite the improvements made on the platform towards the end of 2017, Snapchat's ad product offerings need to improve to measure up to its competitors. They need to offer improved viewability metrics for marketers if they want to increase their ad revenue and be successful moving forward. Currently, having a programmatic access (APIs) to the Snap platform requires special permission from the platform. This means that both marketers and advertisers have no programmatic access to learn about the audience and know what content to create and how to target. Snapchat will face another huge growth barrier in 2018 if they continue to only open its API to a selected number of brands.”

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