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Snap shares skyrocket on first earnings beat with revived user growth

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Snapchat is starting to turn things around, boosting its sluggish user growth rate and beating Wall Street’s expectations for the first time with today’s Q4 2017 earnings report.

It added 8.9 million daily active users to reach 187 million with a quarter-over-quarter growth rate of 5.05% percent in Q4, compared to 2.9 percent in Q3. Revenue was $285.7 million, up 72 percent year-over-year, with earnings per share of -$0.13 adjusted compared to estimates of $253 million and a -$0.16 adjusted.

Snap lost $350 million compared to $440 million last quarter as operating expenses grew to $261 million. Still, Snap Inc shares closed up about 1.52 percent to $14.06 earlier today. In after-hours trading, shares skyrocketed 26% immediately following the earnings release. Wall Street apparently loves to see Snapchat’s growth rate recovering after a long decline since Instagram Stories launched. Snap currently has $2 billion in cash left for hiring, expenses and acquisitions.

In the earnings report’s prepared remarks, Spiegel explained that improvements to Snapchat’s Android app performance boosted retention by nearly 20 percent compared to a year ago, showing a solid increase after the company neglected Android in its first few years. Snap is also working wireless carriers in a dozen markets to reduce the costs of using Snapchat via data discounting programs.

Investors are surely excited to hear that over 90 percent of Snap Ads were bought programmatically, so the shift to an auction system that hurt ad prices is largely behind the company now. Snap is also getting more efficient, as average revenue per user grew 46 percent year-over-year to $1.53 as costs per user grew only 2 percent to $0.98. Snap was mum on

Spectacles sales in Q4 despite aggressive display advertising for the video glasses across the web. It warned that sales would be substantially down in Q1 2018 from the $8 million it sold in Q1 2017 — which was still disappointing. It appears Snap will have to win with software, or an augmented reality hardware device that does much more than put a camera on your face.

We’ll hope to hear more about Snapchat’s big redesign in the Q&A. It was due to be fully rolled out by now but that has been delayed following poor reception in countries like the UK, Australia, and Canada. Amongst some of the first users to review the update, 83 percent of App Store reviews were negative, citing a confusing interface, ads mixed into the message inbox via Stories, and people who don’t follow you back getting pushed into the Discover section.

Spiegel acknowledges “it will take time for our 5 community to get used to the changes” from the big redesign. However he says publisher Stories on Discover grew 40 percent compared to the old design, and core metrics are up disproportionately for users older than 35, showing the navigation simplification may be a success.

Making Snapchat more competitive with its army of clones could be difficult as top talent keeps leaving the company. VP of product Tom Conrad, one of CEO Evan Spiegel’s top lieutanents left in January following TimeHop founder Jonathan Wegener and others.

Snapchat’s new augmented reality ads let you interact with products

Snapchat acquired adtech startup Metamarkets for under $100 million in Q4, which could help it squeeze more revenue out of its existing users since the total number isn’t growing quickly any more. Snap also launched a new “hands-on augmented reality” ads where you can interact with a brand’s products. But we might need to wait until Q1 to see the impact of these on revenue. Snapchat is expected to generate $1.18 billion in US ad revenue in 2018, up 83 percent over last 2017. That would give Snapchat a 1.3 percent share of the US digital ad market.

In the meantime, Snapchat has been racing to release new features to keep users loyal despite the onslaught of competition from Facebook’s Instagram and WhatsApp. Snapchat launched Bitmoji 3D world lenses where your personalized avatar dances in your Snaps, and an augmented reality platform for geolocated art in Q4.

But at its core, Snapchat has to find a way to become indispensable to users in the face of Instagram’s convenience. The momentum from this quarter could help it make the hires, acquisitions, and confident product changes needed to entrench itself as the teenage messaging app while becoming appealing to those who grew up on Facebook.

Featured Image: Bryce Durbin



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