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UPDATE 1- Snap shares tumble after softer Q3 outlook as app revamps ads

(Adds share price in paragraph 2)

By Sheila Dang

July 25 (Reuters) - Photo messaging app-owner Snap Inc on Tuesday beat Wall Street targets for quarterly revenue and user growth, but gave weaker third quarter guidance than analysts had expected as it works to compete with tech giants for advertising dollars.

Shares of Snap, which owns the Snapchat app, dropped 16% to $10.50 in after-market trading.

Snap has attracted hundreds of millions of users thanks to its lighthearted photo filters and more recently, an AI-powered chatbot that can answer questions. However, it has struggled to consistently grow revenue and catch up to rivals like Facebook-owner Meta Platforms, prompting questions from analysts and investors about its strategy.

Revenue for the second quarter ended June 30 was $1.07 billion, beating analyst expectations of $1.05 billion, according to IBES data from Refinitiv.

The Santa Monica, California-based company said it estimates third quarter revenue will be between $1.07 billion to $1.13 billion. Analysts were expecting revenue of $1.13 billion, at the top end of the guidance range.

Changes to its platform to adjust advertisements took a toll, but Snap told Wall Street it is seeing benefits now.

Earlier this year, Snap updated its machine learning model to serve more relevant promotions to users, which Snap said in the short term caused a small number of its largest advertisers to see fewer "actions," such as users tapping on ads, than they did previously

Advertisers are beginning to see results from the changes, which led to a more than 30% increase in "purchase-related conversions" compared to the first quarter, Snap said its Tuesday letter to investors.

Daily active users on Snapchat rose 14% year-over-year to 397 million, beating Wall Street expectations of 394.8 million.

Snap said it expects between 405 million to 406 million daily active users in the third quarter. Analysts had forecast 406.2 million users, according to Refinitiv data.

More than 150 million people have sent more than 10 billion messages to My AI, a ChatGPT-powered bot that was launched in February.

Conversations with My AI will help Snap learn more about user interests and lead to more relevant ads, the company said, adding it is beginning to test sponsored links in My AI's responses.

Snap's net loss was $377 million during the second quarter, narrowing from a net loss of $422 million the previous year. (Reporting by Sheila Dang in Dallas; editing by Susan Heavey)

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