The number of daily active users fell 2% in the latest quarter to 188 million, coming in below Wall Street’s expectations of 193 million users.
It is the latest social media company to disappoint investors after Facebook and Twitter also saw a decline in users.
However, its global revenue was $262m in the second quarter, beating the Thomson Reuters IBES estimate of $250.43m, as average revenue per user surged to $1.40 from $1.05 a year ago.
Snap forecast third-quarter sales of $265m to $290m, up 27% to 39% from a year earlier, compared with 44% revenue growth in the second quarter.
New self-serve ad model pays off
A shift toward a self-serve model for advertisers was paying off, primarily selling ads through self-service, automated auctions rather than direct sales. That has come at the cost of the premium feel Snap had tried to ascribe to its ads, but given overall sales a jolt by attracting more advertisers.
Snap has been able to boost sales volumes by competing with bigger services on price. Prices fell 9% in the second quarter compared with the previous quarter and 52% from a year ago.
“It gives an incredible opportunity for advertisers to come and win on our platform,” Chief Strategy Officer Imran Khan told analysts on a webcast.
With self-service ads, Snap has been able to grow revenue in regions such as Australia and the Middle East, where direct sales efforts are more limited and advertisers have few other options to market to its mainly 18-34-year-old users.
Snap also has been redesigning its app to encourage users to interact with more of its ad-supported videos.
Daily Snapchat users fell to 188 million in the second quarter from 191 million in the prior quarter. Snap had never before logged a quarterly drop in daily users, according to data it has released going back to 2014.
Snap lost about 1 million users in each of its three geographic reporting regions: North America, Europe and rest of world.
Analysts on average expected Snap to gain nearly 2 million users in the second quarter from the first.
Saudi Prince backs Snapchat
Snap picked up a big backer in Saudi Arabia’s Prince Alwaleed bin Talal, who announced soon after the second-quarter results he had bought a 2.3% stake for $250 million in May. He said in a statement Snap had just begun to “scratch the surface of its true potential.”
إستثمرت ٩٥٠ مليون ريال سعودي لاتمام صفقة شراء حصة بنسبة ٢,٣٪ في شركة سناب شاتhttps://t.co/XXOgEvEB2W
— الوليد بن طلال (@Alwaleed_Talal) August 7, 2018
The billionaire, who was held for two months in a high-profile corruption crackdown, said he made the investment on 25 May.
He paid about $11 (£8.51) a share.
His investment comes about three years after he met Snap chief executive Evan Spiegel and chief strategy officer Imran Khan, when the two executives visited Saudi capital Riyadh.
Analysis: Snapchat Vs. Instagram
CEO of social media marketing firm Socialbakers Yuval Ben-Itzhak commented on the earnings, and looks at the steps Snap is taking to ensure it can appeal to advertisers to drive revenue.
Ben-Itzhak said: “Snap’s Q2 earnings results have proven to be a positive surprise. Rumours in the market that Snap is looking to diversify into the lucrative gaming business have certainly been met with interest – this could be a way to gain back those all-important DAUs.
“Revenue growth shows that the company is recovering from its weaker performance in Q1 and looks to be a sign that the platform is becoming more appealing to advertisers. Snap’s partnership with Nielsen to offer deeper audience targeting capabilities may make the platform more appealing to CPG brands moving forward.
“However, the platform is still a long way behind its rivals Facebook and Instagram in terms of advertising dollars and audience size, and its other businesses like Spectacles and Snapcash haven’t achieved much success so far. Like many of the social platforms today, Snap is struggling with user growth. But the future may be looking brighter for Snap.”
With the rise of Stories impacting Snapchat’s daily active user figures, Socialbakers data below demonstrates the numbers of daily active users across Instagram Stories, Snapchat and WhatsApp Status – with Snapchat lagging far behind its rivals. Since the data was pulled, this number has fallen by a further 3 million.
Adoption of Instagram Stories, Snapchat and WhatsApp Status, daily active numbers