Snap beats expectations as sales soar

Snapchat app owner Snap has beaten expectations. Richard Drew/AP

Don’t count Snap out just yet.

The company delivered sales that blew past analysts’ expectations, its first upbeat quarterly report since going public, as advertisers start to get more comfortable spending money on its Snapchat app. The stock jumped as much as 31 per cent in extended trading.

Snap’s first year as a public company has been marked by hurdles, including the loss of its heads of product and engineering. Facebook has copied some of Snapchat’s most popular features for bigger audiences, while a dramatic redesign of the Snapchat app is rolling out slowly. The numbers on Tuesday may help some on Wall Street revisit their original thesis on the company: that Snapchat, already popular with young people, has enough growth potential to carve out a solid slice of a digital ad market dominated by Facebook and Google.

“It’s been a roller coaster mismatch between expectations and reality, but the benefits of all their initiatives are finally starting to come to fruition,” said James Cakmak, an analyst at Monness Crespi Hardt & Co.

In the middle of 2017, Snap began moving to an automated bidding process for selling ads, making it easier for more marketers to buy spots. By October, the system was mandatory. Although that dented average prices, the hit was offset by new customers and a rising number of ad views.

“This decision quickly paid off,” Snap chief strategy officer Imran Khan said. “In three months, we more than tripled the number of advertisers spending in our auction.”

_______________

Read more:

Social media mistakes you can avoid for businesses

Facebook buys popular teen mobile app TBH for an undisclosed price

_______________

Snap said fourth-quarter sales jumped 72 per cent to $285.7 million, beating the $252.8m average projection of analysts, according to data compiled by Bloomberg. Snapchat had 187 million daily active users in the fourth quarter, up 18 per cent from a year ago and ahead of the 184.3 million analysts estimated.

Still, the company was beating much-lowered expectations. At the time of Snap’s initial public offering, analysts expected it could top $1 billion in revenue in its first year. Over time, those estimates slid below $800m.

“They are in the process of building credibility with Wall Street,” said Rich Greenfield, an analyst at BTIG. “Beating Q4 is a nice first step. The real question is, is that going to continue for 2018 or are investors still too optimistic?”

Among Mr Greenfield’s concerns is an app redesign, still not available in Snap’s biggest advertising markets, that separates content created by a user’s friends from media content. The change is supposed to make Snapchat more appealing to a broader audience, but it’s unclear if that will be the result, he said.

Analysts are waiting to see whether the positive steps are, in fact, trends. Brian Wieser, an analyst at Pivotal Research, said while the earnings were good, the results didn’t give him any reason to change his sceptical view of the company, which he rates a ”sell”.

Average revenue per user, a closely watched number, rose 46 per cent to $1.53 in the final period of 2017, while a similar measure of costs grew much more slowly, according to the company.

Excluding certain items, the Los Angeles-based company reported a loss of 13 cents a share, compared to the 16-cent loss analysts predicted. The net loss was $350m in the fourth quarter, for a full-year loss of $3.45bn.

“Our business really came together towards the end of last year,” chief executive Evan Spiegel said.