Snapchat Sales, Users Top Estimates, Buoyed by Android Fix
After a disastrous redesign that alienated users last year, Snap is finally delivering on longtime promises.
(Bloomberg) -- Snapchat’s growth accelerated after the social-media company rolled out an improved version of its Android mobile application and introduced fun ways for people to manipulate their images and videos.
Snap Inc., whose Snapchat app lets people send each other disappearing photos and videos, said an average of 203 million users logged in daily in the second quarter, well ahead of the 191.7 million estimated by analysts. It was a sign of recovery after a rocky period, and shares jumped more than 13% in late trading following the report.
After a disastrous redesign that alienated users last year and the turnover of most of its executive leadership team, Snap is finally delivering on longtime promises that a new version of its app for the Android mobile system would shore up user growth. The company also gave an upbeat forecast, saying it expects daily users of 205 million to 207 million in the third quarter. Investors have recently turned more optimistic about the company’s prospects, and the stock has more than doubled this year.
“Following last year’s substantial product evolution, we believe that we are now better positioned for long-term success,” Chief Executive Officer Evan Spiegel said Tuesday.
In the second quarter, the company’s net loss narrowed to $255.2 million, or 19 cents a share, from $353.3 million, or 27 cents, a year earlier. Snap also forecast third-quarter sales of $410 million to $435 million, exceeding the average analyst estimate of $402.9 million.
Snapchat shares, which rose 4.8% to $14.83 in regular New York trading on Tuesday, climbed as high as $16.79 in extended trading.
Spiegel hasn’t just been working to move past Snap’s own growing pains -- he’s dealing with an increasingly competitive landscape, with Facebook Inc.’s apps copying some of his most popular inventions. Android phones are more popular in emerging markets, where Snap usage isn’t as saturated, and where Instagram’s version of Snap’s popular stories feature is taking hold.
“We don’t see anything on the horizon that would change IG’s dominant grip and continued capture of incremental stories’ users,” said Mark Zgutowicz, an analyst at Rosenblatt Securities, in a note to investors.
That’s why Snapchat needs to focus on growing in other ways, by drawing users in with new games, media content, and ways for people to manipulate their appearances, Zgutowicz said. In April, the company added more advanced ways for users to take videos. In May, Snapchat added a gender-swap filter, which would allow people to see what they’d look like as a member of the opposite sex.
“Does that gender-swap feature have staying power? No,” Zgutowicz said. “But it brings people to the platform and they continue to use it.”
The company said 7 million to 9 million of the new users in the quarter came because of the new augmented-reality tools. The challenge will be retaining those newcomers once the novelty wears off.
Facebook and Instagram swelled in popularity by relying on the network effect -- the more people who use an app, the more people it will draw in and the more staying power it has. Snap is taking a riskier approach, focusing less on network size and more on creative content to keep people entertained as they communicate.
Second-quarter sales jumped 48% to $388 million, the company said Tuesday in a statement, topping the $360.5 million average projection. On a call with investors, Snap made the case that it still has a lot of room to grow -- average revenue per user is still a fraction of what Facebook and Twitter can command.
The company is seeking new advertisers by touting its reach among young audiences -- it says 90% of the 13- to 24-year-olds in the U.S. use its app. And eventually, Snap will be able to sell advertisements to an even larger audience. The company is testing a new system, announced in April, that will allow its ads to run on a network of apps that it doesn’t own.
To contact the reporter on this story: Sarah Frier in San Francisco at sfrier1@bloomberg.net
To contact the editors responsible for this story: Jillian Ward at jward56@bloomberg.net, Andrew Pollack
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