What's going on?
Snap Inc.’s stock snapped back – by more than 45% – after the social media company told investors its revenue and user growth accelerated.
What does this mean?
Snap has had a rough ride since becoming a publicly traded company last March. But the latest quarter marked a return to faster growth – sales jumped 37% versus the previous quarter and losses narrowed by 20% (although Snap still lost $170 million). The number of daily active users also jumped by 5%, an increase on the 2.9% growth in the previous quarter. All of those metrics beat Wall Street’s expectations.
Snapchat underwent a redesign during the quarter, which the company says has led users to spend more time watching “publisher stories”. The revamp has also made the app easier to use, especially for older users, and improved its performance on Android devices with the aim of broadening its appeal. The new version will be available to all users by the end of March – which may lead to further improvement in Snap’s metrics.
Why should I care?
The bigger picture: Google and Facebook are the digital advertising duopoly – and it’ll be tough to dislodge them.
Google and Facebook capture more than 60% of all digital advertising spend. The data they have on their users, as well the platforms they have developed to allow advertisers – both big and small – to publish ads (and, crucially, analyze their advertising return) are big barriers to challengers like Snap. The best-case scenario for Snap may be solidifying a place as a niche digital advertising platform, similar to Twitter (although with a much different audience).
For the markets: Snap’s stock is back above its launch price. (tweet this)
After initially selling its stock at $17 to investors in its IPO – and seeing its stock price pop as high as $27 – Snap’s stock fell below $12 within six months as its growth numbers failed to meet investors’ high expectations. The latest report has reasserted some of that initial optimism.