(Bloomberg) — Snap Inc. is gaining popularity among marketers for its efforts to shake up its digital advertising business, boosting revenue and increasing competition from powerhouses Google and Metaplatforms Inc. It showed a bright sign. Shares soared 26% premarket. transaction.
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The company said in a statement Thursday that sales for the period ending in June rose 18% to $1.26 billion. Analysts’ average estimate was $1.21 billion.
CEO Evan Spiegel has reorganized the company over the past two years, cutting jobs and eliminating projects that don’t drive revenue or user growth. At the same time, Snap has restructured its advertising business, introducing new ways to target and measure ads on the Snapchat app and adding new direct response services. While these changes initially hurt revenue, the latest results show the changes are having an impact.
“Years of hard work in Snap’s advertising business is starting to pay off,” said Max Willens, senior analyst at eMarketer. With the changes made and more marketers joining the platform, “Snap appears to be building some credibility as a platform that can deliver.”
The company reported first-quarter revenue of $1.2 billion, a 21% increase over the same period last year, when Snap was making extensive changes to its digital advertising services. Analysts’ average estimate was $1.12 billion.
Snap’s adjusted earnings before interest, taxes, depreciation and amortization were $45.7 million, compared with less than $1 million in the year-ago period. Analysts had expected a loss of $67.6 million.
The stock reached a high of $14.38 in pre-market trading on Friday, after closing at $11.40 in New York. The stock price has fallen 33% this year. Snap’s results were released in the same week that the U.S. government moved to ban or force major competitor ByteDance to sell TikTok.
Snap has focused on competing more closely with meta social media sites and the likes of Alphabet Inc.’s Google by expanding direct-response ads that prompt viewers to take immediate actions like making a purchase or signing up for an email list. The company said demand is finally accelerating, and revenue for these products rose 17% quarter-over-quarter.
This has encouraged smaller advertisers to invest in Snapchat, and direct-response advertising has helped expand the reach of the ad business. In a letter to investors, the company said the number of small and medium-sized businesses advertising on the platform has increased by 85% year-over-year.
“The value we provide to our community and advertising partners has translated into improved financial performance,” Spiegel said in a statement. “Our large and growing hard-to-reach community, brand-safe environment, and full-funnel advertising solutions make us an increasingly important partner for businesses of all sizes.”
The company said users spent 125% more time last quarter watching Spotlight, a scrollable video feed that offers a TikTok-like experience. With TikTok potentially banned in the US, investors will be paying close attention to whether Snapchat and its peers can make any gains in the coming quarters.
Snapchat had 422 million daily active users in the quarter that ended March 31, a 10% increase from the same period last year. The company predicted the number of users for this period to be 431 million. Both metrics exceeded analysts’ average expectations.
Santa Monica, Calif.-based Snap is also looking to users for new revenue streams. The company’s subscription service “Snapchat+” had more than 9 million paying users in the first quarter, triple the number from the previous year.
“The most important strategic priorities we have set for 2024 are accelerating and diversifying our revenue growth,” Spiegel said in a post-earnings conference call.
The company continues to invest in machine learning, augmented reality, and artificial intelligence technologies to recommend relevant content to Snapchat users and improve digital ad offerings. This type of computing requires spending on technology infrastructure, and Snap for the first time provided full-year guidance on that spending. The company expects to spend between 83 cents and 85 cents per user each quarter for the remainder of the year.
Snap’s first-quarter net loss was $305 million, an improvement of 7% from the same period last year. Earnings, excluding certain items, were 3 cents a share, compared with analysts’ expectations for a loss of 5 cents.
(Updates with pre-market share moved from first paragraph)
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