Snap recovers well in latest quarterly report after previous drop in user growth.
Snap’s Q4 earnings report sees the company on the up following Q3’s disappointing results, which saw stock drop 18pc in after-hours trading. Q3 was especially poor in terms of new daily users, with a 4.5m figure for user growth compared to an 8m prediction from analysts.
After the company’s IPO in March of 2017, things haven’t been easy for Snap, fighting constant imitation and competition from Facebook and Instagram.
So, how did Snap fare during Q4?
A smaller loss than expected
Analysts had been expecting Snap to lose approximately $409m, according to Quartz, but the actual figure was around $350m. Total earnings for Q4 were $285.7m versus a Reuters $253.2m estimate, and revenue grew 72pc year on year. Investors were pleased with the outcome and Snap stock leapt more than 22pc after the bell.
Snapchat’s redesign shows promise
During Q3 of 2017, Snap announced that it was redesigning its Snapchat app to reel in new users and explore fresh methods of monetisation, with changes beginning in November 2017.
It is hoped that the redesign, which is still in the process of rolling out, will help the company scrape back some of the early-stage popularity that was knocked by Instagram Stories.
Although CEO Evan Spiegel noted that the new design would take some getting used to, he said that core metrics are up for users over the age of 35, meaning that the simplification of the interface is working.
Snap also paid more attention to the previously neglected Android app, boosting retention by nearly 20pc compared to the same period last year.
Major boost in user growth
Wall Street was disappointed in the meagre amount of new users that Q3 of 2017 brought, but this has significantly turned around for the final quarter of the year. Snap seems to have reversed the pattern of falling user growth seen in previous quarters, with 187m active users on Snapchat reported in Q4 – 18pc higher than the same period for last year.
Average revenue per user has also crept up to $1.53 this quarter, with the vast majority of its revenue coming from North American users.
Spiegel said: “We executed well on our 2017 plan to improve quality, performance and automation, which removed friction from our advertising business and improved our application for the Snapchat community.
“This translated into annual revenues that grew 104pc from the prior year, and 8.9m daily active users added in the fourth quarter – the highest number of quarterly net adds since the third quarter of 2016.”
Snap Ads becoming more efficient
Investors will be glad to hear that more than 90pc of Snap Ads were purchased programatically, meaning the damage caused by the move to an auction-based system that initially hurt ad prices seems to have reduced.
Spiegel explained the changes to investors: “Our advertising business changed profoundly over the past year as we migrated the sale of our Snap Ads to an automated auction.
“Over 90pc of Snap Ads were bought programmatically during Q4, which means that the auction transition for Snap Ads is largely behind us. We are learning a lot while operating our automated advertising platform and we are constantly improving the way we sell and serve advertising.”
Revenues from smaller businesses more than doubled from Q3 to Q4, according to Snap’s chief strategy officer, Imran Khan.
Snap needs to diversify
Spiegel noted that Snapchat needs to grow beyond the mobile app, and the company has started the ball rolling on creating the ability to share Snaps with third-party apps and websites.
“With our plans for user growth, augmented reality and content in 2018, I have never been more excited about the future of our business. We’re going to keep up the hard work and stay focused on the big opportunities ahead,” the CEO concluded.
This quarter was certainly a turnaround for Snap and, while it is currently operating at a loss, there is much evidence to prove that its business strategy is paying off.