Snap Sees Surge In Users, Ad Revenues

Snapchat parent Snap reported second-quarter revenue and user growth that beat analysts’ estimates, sending the company’s shares sharply higher in what one analyst called a sign of renewed strength in the broader advertising market.

The firm said it expects second-quarter revenue between $1.23 billion (£980m) and $1.26bn, compared to analysts’ predictions of $1.22bn.

Snap said business was improving faster than expected due to upgrades of its ad system and increased advertiser demand for new features.

Morningstar analyst Michael Hodel noted that Snap’s revenue per user increased year-over-year for the first time since early 2022 in an indication of stronger demand from advertisers and the effectiveness of Snap’s efforts to revive growth.

User growth

Snapchat daily active users in the first quarter grew 10 percent year-over-year to 422 million, beating analysts’ predictions of 419.6 million, while first-quarter revenue grew 21 percent to $1.2bn, compared with analysts’ estimates of $1.12bn.

The firm said total watch time on its TikTok-like short video feature Spotlight, which launched in 2020, grew more than 125 percent year-over-year, shortly after US president Joe Biden signed a bill that would ban TikTok from the country if parent company ByteDance does not divest it within nine months.

Overall time spent watching content globally showed year-over-year growth driven by the Spotlight and Stories features.

Snap said more advanced ranking models it has built over the past year are driving more engagement with content.

Subscriptions

Paid Snapchat+ subscribers more than tripled year-over-year to more than 9 million in the quarter.

The firm said advertisers showed stronger demand for features such as its direct-response (DR) advertising solutions and noted that small and medium-sized advertisers on the platform grew 85 percent year-on-year.

Chief executive Evan Spiegel said Snap was making efforts to highlight content that feels more timely and topical and spoke of a focus on the “creator journey overall”.

“That journey from using Snapchat to communicate with 100 friends to growing a following of millions. And really making sure that people are creating great stories or great Spotlight content can be discovered and then grow that following and ultimately build a business over time,” he said during a call with analysts.

Competition

Snap’s share price has dropped by about one-third since the beginning of the year as it struggled to compete for advertising spending with much larger competitors such as Facebook parent Meta Platforms, and the firm in February said it would cut 10 percent of staff.

Shares in Snap rose some 26 percent in after-hours trading on Thursday following the earnings news and held onto their gains on Friday, but the stock is still down about 10 percent from the beginning of the year.

Meanwhile Meta saw its shares tumble about 10 percent late last week after it said it planned to spend heavily on AI technologies.

Morningstar’s Hodel said that in spite of improving operating margins it may take until 2028 for Snap to achieve profitability.