Overhaul of Snapchat Has Investors Convinced

Snapchat’s owner Snap Inc. reported on Tuesday substantial growth in its users and revenue during its most recently-ended quarter, which revived hopes the social media app can survive the competition it has in the form of Instagram, owned by Facebook. The news helped send shares of Snap up over 20%.

Investor enthusiasm in the instant messaging company faded following last year’s initial public offering. However, the company, based in Venice, California, said customers were now remaining longer on its Android version, after bugs in the software were fixed, and advertisers have taken to an advertising system that is auction based that makes it less expensive and easier to purchase ads.

The daily active users on Snapchat increased to over 187 million during the quarter that ended December 31, from the third quarter count of 178 million and beat estimates on Wall Street of 184.2 million.

The number of daily active users increased by 18% compared to the same period one year ago, which reversed a trend for growth slowing down. The figure is monitored closely by investors who have the hope that user growth translates into more advertising revenue.

Revenue was up 72% to end the quarter at $285.7 million, which beat expectations of analysts for $253.2 million.

Instagram, which has over twice the number of daily users that Snapchat has and is backed by Facebook and its huge amounts of cash, has been a threat to crush its rival through copying its features like disappearing slide shows and photo filters.

Confidence the two would be able to coexist across the social media industry was shaken after the user growth of Snapchat stalled during 2017. Analysts however said that it appeared Snapchat was willing to look inward in an attempt to fix its problems instead of being distracted by its competition with Instagram.

One analyst said the two apps would continue to compete and Snap was doing well competing for available revenue.

Snapchat is courting its advertisers in an ad market on internet dominated by Google and Facebook, which together hold over 50% of the market share, said eMarketer a research firm online.

While Snapchat advertisements were once bought primarily by larger brands that had household names, revenue more than doubled that came from small businesses between the third and fourth quarter, CSO Imran Khan told investors during a conference call.

Snap’s net loss was $350 million equal to 28 cents a share compared to a $170 million loss equal to 20 cents per share for the same period one year earlier.

Revenue per user increased 46% from the previous year to reach $1.53, while the cost of revenue for each user increased 5% ending the quarter at $1.02.