People are flocking to Snapchat again, and investors are thrilled

Back on track.
Back on track.
Image: AP Photo/Richard Drew
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In its best quarter since going public in 2017, Snap added 13 million daily active users on Snapchat, an 8% gain year-over-year. The company reported its second-quarter earnings today (July 23), and the sudden jump reversed a period of stagnation for Snap, which investors feared was losing ground to competitors like Facebook’s Instagram and TikTok.

The company said the average number of snaps created on Snapchat daily grew to 3.5 billion (it was 2.5 billion at the time of Snap’s March 2017 IPO). It also said found that the time users spent watching Discover, the platform’s hub for public snaps and content curated by publishers and influencers, increased by 60% over the same period last year, but didn’t provide a specific viewership figure.

Snap’s quarterly performance handily surpassed the $360 million revenue figure analysts surveyed by FactSet expected, posting $388 million in revenue for the quarter, a 48% increase over the same period last year. In after-hours trading, the stock shot past $16—though shares remain below their $17 IPO price. It hasn’t closed above that mark since March 2018.

The earnings beat also makes Snap one of the stock market’s biggest winners so far this year, with the company’s stock price up 184% on the year, having started the year at just $5.79. By comparison, the S&P 500 is up 19% on the year.

Snap put the renewed success down to its revamped Android app, which it said saw a “10% increase in the retention rate of people who open Snapchat for the first time,” engaging content on Discover, as well as its new gaming platform on Snapchat, and new augmented-reality filters in the app. These filters, including the popular gender-swapping filters, have come after the company’s investment in its AR platform. But these innovations don’t come cheap: The company spent over $236 million in research in the quarter alone, up from about $203 million spent in the same quarter last year.

On the whole, Snap reported a loss of $79 million, a significant improvement over the $169 million it lost during the second quarter of 2018. For the next quarter, the company anticipates revenue between $410 and $435 million, compared to $298 million in the third quarter of 2018. It also projects continued—but narrower—losses, in the region of $85 million to $60 million, versus a $138 million loss in the same quarter last year. But if it can keep growing its user base, finding new people to show ads to, investors will likely continued to be pleased by its trajectory.