Snap Inc. stock skyrockets after active user growth, strong earnings report
Feb 08, 2018, 00:42
Snapchat's owner Snap Inc. reported on Tuesday substantial growth in its users and revenue during its most recently-ended quarter, which revived hopes the social media app can survive the competition it has in the form of Instagram, owned by Facebook.
Snapchat had been struggling for the most part since the company went public past year, but the Q4 results allowed shares to bounce back after the platform expressed its confidence in beating its rival Instagram.
But the company bucked that trend Tuesday, announcing it had added 8.9 million daily active users during the quarter. The figure surpassed analyst's expectations of 184.2 million users.
Overall revenue rose 72 per cent to $285.7 million, beating analyst expectations of $253.2 million.
Confidence that the two could coexist in the social media sector was shaken when Snapchat's user growth stalled a year ago.
Snapchat is banking on smaller businesses to advertise on its platform as ad revenue has almost doubled in that market.
While Snapchat advertisements were once bought primarily by larger brands that had household names, revenue more than doubled that came from small businesses between the third and fourth quarter, CSO Imran Khan told investors during a conference call.
The root cause of Snap's troubles in the past few quarters has been a painful shift in its advertising business, from traditional sales team to a self-service auction where prices are set algorithmically.
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Amazon also benefited from favorable foreign exchange rate changes over the year, amounting to a $1.1bn windfall. Amazon's cloud unit, AWS, continued to be the fastest-growing and most profitable business of the company.
Snapchat has sought to distinguish itself from Facebook with a design that "separates social from media", according to Spiegel, who said this helps avoid "many of the problems that arise when friends are commingled with professional content creators".
Shares traded at $17.73 after the bell, up 26 per cent after trading even higher earlier.
Snap (NYSE:SNAP) was upgraded by analysts at Bank of America from a "neutral" rating to a "buy" rating in a report issued on Wednesday.
Amid concerns Snapchat would not be able to keep growing rapidly in the face of Instagram's competition, Snap's stock price had fallen by half from its $29.44 high after its initial public offering past year and not traded above the IPO price of $17 since July 10.
The company plans to lure in more users by redesigning Snapchat to make it easier to use and fixing software bugs.
The main reason given by the company for the stellar revenue numbers was the fact that daily active users have risen dramatically since the previous quarter. This compares with losses of -0.20 cents per share in the year-ago period.
The company is in the process of rolling out a major redesign, which CEO Evan Spiegel says will become available for all users in the first quarter.
The company expects its year-over-year revenue growth rate to moderate in the current quarter compared with the fourth quarter, Chief Financial Officer Drew Vollero said.
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