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Snap stock soars on first ever better-than-expected earnings

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Snap stock is up 25 percent

Photo by Amelia Holowaty Krales / The Verge

It looks like the cloud of doom and gloom hanging over Snapchat parent company Snap Inc. may be in the early stages of receding, as the company today posted its first ever better-than-expected quarterly earnings since going public in spring of last year. Helping the situation even further is an improved user growth rate of 5 percent this past quarter, up from 2.9 percent in the previous quarter, with 8.9 million new users. That indicates that Snap CEO Evan Spiegel’s redesign of the Snapchat app, unveiled back in November and still in the process of rolling out worldwide, may be helping the company reclaim some of its early-stage popularity surges that were damaged, in part, by Facebook’s launch of Instagram Stories.

By the numbers, Snap’s fourth quarter earnings were significantly higher than Wall Street expectations, with sales of $285.7 million, or a 72 percent increase over the same time a year ago, and a net loss of $350 million. Analysts expected Snap to post revenue of $255 million and a loss of $405 million, meaning the company vastly out-performed its projected metrics. Investors were thrilled with the outcome, sending Snap stock sky rocketing more than 25 percent in after-hours trading.

In a letter to investors issued today, Spiegel lays out the case for Snap’s willingness to respond to increased competition from Facebook and Snapchat’s growth struggles. He also writes at length about the Snapchat redesign. “Additionally, we believe that the redesign has also made our application simpler and easier to use, especially for older users,” Spiegel writes. “Compared to the old design, core metrics around content consumption and time spent in the redesigned application are disproportionately higher for users over the age of 35, which bodes well for increasing engagement among older users as we continue to grow our business.”

According to Spiegel, Snapchat needs to grow beyond its mobile application — a nod to the company’s recent decision to make certain Stories viewable on the web. “We feel strongly that Snapchat should not be confined to our mobile application — the amazing Snaps created by our community deserve wider distribution so they can be enjoyed by everyone,” Spiegel writes. “Our work during 2017 is proof that we aren’t afraid to make big changes for the long-term success of our business.” Snap also says that the redesign has had a positive impact on the overall revenue-per-user, which increased by 46 percent to $1.53.

Overall, the quarter is a refutation, albeit a temporary one, from Spiegel to claims that Snapchat could be in a Twitter-like downward spiral from which it may not recover. The company has been besieged by bad press, continuous leaks, and a pessimistic outlook from analysts, investors, and industry watchers these past few months, since its disastrous earnings report back in November.

That the company rebounded so strongly shows that Spiegel does in fact understand how to remedy some of his company’s woes. Snap, due to its top-down structure and Spiegel’s apparent willingness to change things up on the fly, has restructured some aspects of its ad model and its user interface, all with intent of making Snapchat easier to use and more competitive with Facebook-owned properties, which in turn drives the app’s popularity and revenues as a result. Still, Snap has a lot of work to do to fight back against Facebook’s dominance of social media and messaging, a process that will take many months, if not years, and many more product iterations and new features to ensure Snapchat remains relevant enough to continue growing.