SNAP reported third-quarter revenue that slightly topped analysts’ expectations, suggesting the overhaul of its advertising business is catching on with marketers. The shares rose in extended trading.
Sales increased 15 per cent to US$1.37 billion in the period ended Sep 30, Snap said on Tuesday (Oct 29). Analysts, on average, estimated US$1.36 billion, according to data compiled by Bloomberg. The social media company also eclipsed projections for user growth on the Snapchat app, bolstered by an increased focus on video content.
Snap has revamped its advertising business over the last several years, focusing on direct response ads that prompt users to take a specific action, such as visiting a website or downloading an app. Historically, the company had targeted brand awareness ads, which are cheaper to build and operate but less lucrative.
That pivot has shown signs of promise for Snap’s business, but the results have been inconsistent. Snap has fallen short of Wall Street’s revenue estimates in two of the past four quarters.
The shares gained about 9 per cent, reversing an initial drop of as much as 13 per cent after the results were released. The stock closed at US$10.89 in New York and has plunged 36 per cent this year.
Snap projected holiday quarter sales will be US$1.51 billion to US$1.56 billion, compared with the average estimate of US$1.56 billion. Snap cautioned that the pace of advertising from large clients was not as brisk as typical for the period.
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“Upper funnel advertising from large enterprise clients has historically been an important component of demand in Q4, and this portion of the business has been underperforming our overall ads business in recent quarters,” the Santa Monica, California-based company said in a letter to shareholders.
Snap said users spent 25 per cent more time watching video content on its Snapchat app in the third quarter than the year prior, which in turn has lured advertisers to buy more ads on the site. The company reported Snapchat had 443 million daily active users in the third quarter, up 9 per cent from one-year ago and surpassing analysts’ expectations.
Snap recently redesigned its app to highlight more video content for users from people they might not be connected to, and improved its algorithm for ranking posts, which has helped boost engagement. The company’s subscription product, called Snapchat+, has also lured users to spend more time on the site. The service, which includes access to an artificial intelligence powered chatbot, now has 12 million subscribers – more than double from a year earlier – and generates nearly US$123 million in revenue, the company said.
“Snap’s continued hard work to revamp its ad business to better serve performance-focused advertisers, particularly small and medium-sized businesses, and diversify its revenue streams through subscriptions is paying off,” said Jasmine Enberg, an analyst at EMarketer. “Investors should be pleased with Snap’s topline revenue and user growth figures, though the weaker guidance for Q4 suggests that brand advertising remains a significant headwind.”
The company based in Santa Monica, California, has been spending heavily on AI and augmented reality technologies in order to better target ads, recommend video content, create digital image filters and build new products, including smart glasses. The company plans to spend nearly US$1.5 billion this year on infrastructure services related to those technologies, Bloomberg earlier estimated.
Snap reported a net loss of US$153.2 million in the period ended Sep 30, compared with a loss of US$368.3 million a year earlier. Analysts, on average, projected a loss of US$223.2 million. Snap also announced board approval for a US$500 million share buyback programme, though that programme could be terminated at any time. The company’s previous buyback plan of as much as US$500 million was authorised in October 2023. BLOOMBERG
