Snapchat Says App Usage Accelerating With People in Lockdown

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(Bloomberg) --

Snapchat’s parent company reported a jump in daily users and said it expects to keep growing as people turn to messaging apps to stay connected during the coronavirus pandemic. Shares surged as much as 22% in late trading.

Snap Inc. said the app’s popularity is accelerating, with Snapchat reaching an average of 229 million daily users in the first quarter, compared with the 224 million analysts projected, according to Bloomberg consensus estimates. With many users sheltering in place and spending more time on their smartphones, activity is also on the rise, Snap said Tuesday in prepared remarks.

The Santa Monica, California-based company said it’s too soon to know whether the surge in usage will boost revenue, because advertisers are expected to trim budgets during the global Covid-19 outbreak. First-quarter sales jumped 44% to $462.5 million, also topping analysts’ predictions, and Snap said revenue growth in the current period has slowed but not stopped. In the first few weeks of April, revenue was up 15% from a year earlier, Snap said. Still, the company said it’s not providing forecasts for the current period.

Chief Executive Officer Evan Spiegel said his company has enough cash to continue hiring and investing in research and development despite the economic slowdown caused by the virus. After a 2017 IPO, Snap’s rocky performance and lackluster growth forced Spiegel to cut staff, change the focus of the advertising business and raise more money by selling convertible bonds. “The many difficult transitions and changes we made as a business over the past few years have positioned us well for the challenges ahead,” he said in the company’s remarks.

Now, Snapchat has become a vital tool for people stuck at home with no way to see friends in real life or venture out for entertainment. The app, mainly used for friends to chat through photos that disappear, has also become more popular for other, more solitary features, like games and short TV series on the company’s Discover page. With TV studios losing the ability to film traditional shows, the short-form content might see greater adoption.

Snapchat Says App Usage Accelerating With People in Lockdown

Snapchat has also seen broader use of its augmented-reality face filters, which let people chat while appearing as talking rolls of toilet paper, or with virtual cats on their heads. The company said an average of 75% of users engaged with an augmented-reality feature every day during the first quarter. Spiegel said the company has been seeing more interest from brands using AR in their ad campaigns -- for example, makeup companies that might need to let users try on a product virtually before they buy it.

The company’s shares climbed as high as $15.12 in extended trading following the report. Snap stock closed at $12.44 in New York, marking a 24% decline for 2020. The company’s upbeat announcement also lifted shares of social-media rivals Twitter Inc. and Facebook Inc., which have yet to report earnings.

Snap may be more insulated from the downturn than Facebook and Twitter because it doesn’t have as many small advertisers, said Jim Cridlin, global head of innovation and partnerships at WPP Plc’s Mindshare media agency. “Those larger advertiser budgets are more stable than small business advertisers, and their businesses are more likely to remain open,” Cridlin said in a note following Snap’s report.

The company’s first-quarter net loss narrowed to $305.9 million, or 21 cents a share, from $310.4 million, or 23 cents, a year earlier. Excluding certain items, the loss was 8 cents a share.

©2020 Bloomberg L.P.

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