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Snap Q3 results top expectations as user growth continues

Snap (SNAP) reported quarterly results on Tuesday that topped consensus expectations, as the social media company sustained improvements in user growth and monetization.

However, its shares fluctuated and plunged in after-hours trading by as much as 13% before paring some losses, as investors digested its mixed fourth-quarter guidance.

Here were the main numbers from the report, versus Bloomberg-compiled consensus estimates:

  • Revenue: $446 million vs. $437.9 million expected and $297.7 million YOY

  • Adjusted loss per share: 4 cents vs. 5 cents expected and 12 cents YOY

  • Daily active users: 210 million vs. 206.1 million expected and 186 million YOY

Snap, the parent company of the disappearing photo app Snapchat, has grown its user base in each quarter since the start of this year, reversing a declining trend from 2018. In its July report, the company’s 203 million total global daily active users topped expectations by more than 10 million.

In the third quarter, Snap said its daily active users were up both on a quarterly and yearly basis in each of its North American, European and “Rest of World” geographic regions.

“We delivered strong results this quarter, and we are pleased that the investments we have made are continuing to drive the growth of our community and our business,” CEO Evan Spiegel said in a statement.

“We are a high growth business, with strong operating leverage, a clear path to profitability, a distinct vision for the future, and the ability to invest over the long term. We are excited about executing on the many opportunities in front of us,” Spiegel added. Spiegel said the company is on a “clear path” to adjusted EBITDA profitability in the fourth quarter.

Other guidance for the current quarter was mixed, however. Snap said it expects daily active users to total between 214 million and 215 million for the fiscal fourth quarter, higher than the 208.1 million consensus. But sales are expected to come in between $540 million and $560 million, with the midpoint of this range below the $557.2 million expected by consensus analysts.

Snapchat is a free photo and video sharing application. Photo by Chesnot/Getty Images)

Ahead of results, analysts were broadly expecting that the Santa Monica, California-based company would continue its upward trajectory. The platform has been attracting new users – and keeping existing ones from leaving the platform – through a combination of user experience revamps and marketing pushes, Richard Greenfield, partner at LightShed Partners, wrote in a note initiating coverage of Snap on Monday.

For the reported quarter, Snap likely benefited from its recently rebuilt Android app, redesigned Discover section and “Real Friends” global ad campaign launched in July. That oriented the company as a friendlier platform versus competitors like Facebook-owned (FB) Instagram, Greenfield said. He rates Snap as a Buy.

And on the advertisers’ side, Snap Select – which lets customers embed their ads into more premium content on Snap Discover like ESPN and BuzzFeed shows – helped drive further monetization and increase time spent on the app, Greenfield added. Snap Select was first launched in the second quarter.

In its third-quarter results, Snap said its total daily time spent by users watching Discover content jumped 40% year-over-year. Average revenue per user, or ARPU, great 33% to $2.12.

“Our conviction in Snapchat’s recovery has grown meaningfully over the course of 2019, as we hear positive first-hand feedback from advertising clients and programming partners,” Greenfield said.

Snap also introduced Instant Create in July, a tool simplifying the process for advertisers to build campaigns and helping “improve spend from the longer-tail of clients,” according to JPMorgan analyst Doug Anmuth.

Snap’s stock has pared some gains after breaching $17 per share in late September, amid a broader rotation out of high-growth names. Its shares had still more than doubled for the year-to-date through Tuesday’s close, versus a 20% gain in the S&P 500 Index.

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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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