Users Are Showing Snapchat A Lot Of Love – With Or Without COVID-19

Snap Inc. SNAP managed to beat expectations across the board for earnings, revenue, and user growth with its latest quarter results. With 293 million daily Snapchat users, it is enjoying its highest user growth in years. Moreover, revenue more than doubled in the latest quarter, easily topping expectations due as the advertising market rebounds from the pandemic.

Upon the news, shares were up 18% in after-hours trading. Also on Thursday afternoon, social-media peer Twitter Inc. TWTR posted upbeat results and its shares were up 5% in after-hours trading. Larger ad players such as Facebook Inc FB and Alphabet Inc. GOOGL saw their shares rise 3% and 1%, respectively.

Q2 Figures

Overall revenue skyrocketed by a very impressive 116% from $454 million a year earlier to $982 million, which is its strongest growth rate yet. That's faster than even that of Twitter and Facebook FB. It is also up vastly ahead of the $846 million that FactSet analysts saw coming.

The bottom line is that Snap managed to halve its losses, from $326.0 million, or 23 cents a share last year to post a net loss of $151.6 million, or 10 cents a share. After adjusting for stock-based compensation and other expenses, Snap surprised with positive earnings per share of 10 cents, exceeding significantly a loss of 9 cents per share a year earlier.

The social-media company added 13 million daily average users sequentially in the period, bringing the total to 293 million, which is a 23 percent growth from this time last year.  It is also up from 173 million this time four years ago, the company's prior best of 22 percent, also topping Twitter's 206 million that it reported for its latest quarter.

A Confirmation Of Strength

Second-quarter results reflect the broad-based strength of the business that grew both revenue and daily active users at the highest rates achieved in the past four years. The social media company benefited from a favorable operating environment but more importantly, it received a positive response both directly and from large brand advertisers. If we zoom in at Snap's Spotlight service which aggregates user-generated content, daily active users rose 49% sequentially with average daily content submissions nearly tripling.

There's More To Learn About Monetization

Most of the user growth during the quarter was outside its core markets, namely North America and Europe, where advertisers are willing to pay more to reach people. That means Snap has a lot more room to run in monetizing its new users. It's also important to note that the quarter's results benefitted from a delayed rollout of Apple's AAPL changes to data tracking where users need to give permission to be ‘tracked'.

Venturing Into Augmented Reality

Snap made several shopping-related acquisitions earlier in the year as it attempts to dive deeper into e-commerce. It recently revealed its partnership with Verishop through which it will provide consumers with the opportunity to explore different outfits thanks to augmented reality.

In simple words, Snap is investing in creating value for businesses by reimagining the shopping experience through personalization and augmented reality. Users can try on different fashions using the app, along with a new pair of Spectacles with built in augmented reality. What Chief Executive Evan Spiegel is hoping for is that the development of the app's augmented reality features will boost engagement further. In other words, the company is laying the groundwork for an improved and disruptive online shopping experience.

Outlook

For the undergoing quarter, Snap expects $1.070 billion to $1.085 billion in revenue, exceeding Fact Set's consensus of $1.014 billion. Snap has seen its stock rise 25% this year whereas the S&P 500 gained 16% over the same period. The company has been capitalizing on a resurgence in the advertising market and it is investing in creating features beyond messaging to bring in more revenue.

An Impressive Tech Turnaround Story

Just a few years ago, there were concerns that Snap cannot survive as a standalone company. Today, these figures tell a different story- one of the most impressive turnarounds in tech. They also reflect how tech companies have benefited from the pandemic that drove people online. Moreover, Snap CEO Evan Spiegel is confident about the post-pandemic prospects, expecting the app's user base to grow faster because Snapchat is designed to be used when out and about with friends.

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