- Snap, the company that makes the Snapchat app, reported a big earnings beat that sent the stock soaring more than 20% in after hour trading.
- The company said it now has 187 million Daily Active Users, thanks to improvements made to the Android version of the Snapchat app.
- Snap’s CEO Evan Spiegel says Snapchat’s delayed redesign is testing well and will launch for everyone during the first quarter of this year.
Snap crushed Wall Street’s revenue targets in its fourth quarter, as it filled its Snapchat app with more ads than ever and tapped into a broader group of consumers.
The Snapchat maker’s stock rose as much as 30% in after-hours trading as Wall Street cozied up to the fact that the company is making big changes to its business after its rocky IPO last year that sent its valuation tanking.
“Our work during 2017 is proof that we aren’t afraid to make big changes for the long-term success of our business,” CEO Evan Spiegel said during a conference call on Tuesday.
Those changes have included rethinking past habits, with Snap making greater efforts to appeal to older users and to users of Android phones, who often reside in overseas markets.
Perhaps most importantly for Snap’s Q4 revenue results was the shift in its business to an automated auction-based advertising system, known as “programmatic.” That change helped boost the number of ads featured in its app by 4X the amount from the same time last year, with 90 per cent of the ads now coming from programmatic systems, according to the company.
Here are some of the key figures from Snap’s Q4 earnings announcement, compared to Wall Street’s expectations (via Bloomberg):
- Revenue: $US285.7 million, up 72% year-over-year and above the $US252.8 million expected by analysts
- DAUs: 187 million, up 5% from Q3.
- EPS/Net Loss (adjusted): ($US0.13) vs. ($US0.16) expected
Although Snap said its 187 million daily users meant that it still had a “lot of room to grow” in terms of filling the app with ads, it warned that the 72% revenue growth in the last three months of the year was not sustainable. Revenue growth in Q1 will “moderate,” Snap said.
A massive overhaul of the Snapchat app is now on track to be rolled out broadly in the current quarter, Snap said. The redesign, which was originally supposed to launch last December, is supposed to make Snapchat easier to use as the app looks to court new users, especially older users outside Snapchat’s core millennial demographic.
Shares of Snap, after initialy surging 30% following the announcement of the results, were up about 21% at $US17 – the price at which Snap sold shares in its high-profile IPO in March. Since the IPO, Snap has released a string of dissapointing financial results that have left investors questionining the company’s growt prospects.
The overall message in Spiegel’s remarks seems pretty clear: Snap has heard Wall Street’s criticisms and it’s making big changes to address concerns over user growth and ad revenue growth.
The Android opportunity and the rest of the world
Snapchat daily active users (DAUs) were 187 million, up 18% year over year. They increased by 8.9 million, or 5%, from the previous quarter. Snap has struggled with DAU growth since going public last year. In prepared remarks, Snap CEO Evan Spiegel said last quarter’s growth was due to improvements made to the Android version of Snapchat.
“The retention rate of new Android users increased by nearly 20% when compared to last year, meaning that the people who try Snapchat on Android are much more likely to stick around and become Daily Active Users. Additionally, the fourth quarter saw significantly more new Android users as a percentage of net additional users than any other quarter in our history,” Spiegel said in the prepared remarks.
That may have helped Snapchat boost its revenue outside of North America, with revenue from Europe and the “Rest of World” region growing 167% and 333% respectively.
Spiegel also said in the remarks that ad impressions increased four times year over year. The price per impression decreased 25% sequentially, he said.
In fact, Spiegel said the redesign is testing better with older users.
“Compared to the old design, core metrics around content consumption and time spent in the redesigned application are disproportionately higher for users over the age of 35, which bodes well for increasing engagement among older users as we continue to grow our business,” he said.
Snap also said operating expenses for the first half of the year would increase by a “low double digits” percentage compared to the last half of 2017.
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