U.S. Markets close in 3 hrs 25 mins

Snap Beats Sales, User Estimates; Shares Fall on Tepid Outlook

Sarah Frier

(Bloomberg) -- Snap Inc.’s revenue and user growth beat analysts’ estimates in the third quarter, boosted by an increase in downloads of the revamped Android version of its mobile app. A tepid forecast for the current period, combined with a strong runup in the stock price this year, sent the shares lower in late trading.

The company reported a 13% quarterly jump in daily active users for its Snapchat application, to 210 million, beating the 206 million average estimate of analysts surveyed by Bloomberg. Third-quarter sales jumped 50% to $446 million, compared with the $437.9 million projected by Wall Street.

Snapchat, which lets people send video and picture messages that disappear and offers popular photo filters, seems to have mostly recovered from a rocky performance after its 2017 initial public offering. It has weathered executive departures, user defections and tough competition from Facebook Inc.’s Instagram. The company has been working toward reducing expenses, helping narrow the net loss in the recent period to $227 million, or 16 cents a share. Analysts had projected $262.3 million.

But the positive results were overshadowed by Snap’s revenue outlook for the fourth quarter, which at the midpoint came in below analysts’ expectations. Even after three quarters of beating Wall Street’s projections, the forecast signaled that Snap’s growth is still a work in progress.

The company has improved Snapchat’s performance, especially on Android phones, and increased the amount of fun and creative tools for the app, including social games and filters that allow people to manipulate their faces into cartoon characters. That’s led users to open it 30 times a day on average, according to Chief Executive Officer Evan Spiegel. Previously, the Android version of the app was buggy and slow, making it difficult for Snapchat to grow in important markets where Android is dominant -- outside the U.S. and Europe. Following the long process of rebuilding the app, the new Android version was finally released to all users earlier this year.

Now, advertisers are slowly looking to Snapchat as an alternative to the technology industry’s much larger platforms.

“Google and Facebook dominate mobile advertising, but there is plenty of room for other winners as mobile time spent continues to scale,” said Rich Greenfield, an analyst at Lightshed Partners. “Our conviction in Snapchat’s recovery has grown meaningfully over the course of 2019, as we hear positive first-hand feedback from advertising clients.”

Snapchat still needs to win over advertisers in Android-heavy countries, where most of its growth is. Snap said it expects 214 million to 215 million daily average users in the fourth quarter, helping the company generate revenue of $540 million to $560 million. Analysts on average expected $557 million in sales this quarter.

Snap shares fell 1.4% in extended trading, after earlier closing down 4% at $14. The shares have more than doubled so far this year, but aren’t yet higher than their $17 IPO price in 2017.

Santa Monica, California-based Snapchat has become a poster child for Facebook’s competitive hold on the social-media market. Facebook and its photo-sharing app Instagram have repeatedly copied Snapchat’s best features, cutting into its potential. Now, Facebook is under investigation by the U.S. Justice Department and the Federal Trade Commission for antitrust violations. Snapchat’s recovery could weaken the government’s argument.

Both companies are now facing competition from TikTok, a new social network popular with young people, owned by China’s Bytedance Inc. While Facebook CEO Mark Zuckerberg is rallying employees to compete with TikTok through a copycat app called Lasso, Snap’s Spiegel said Tuesday on a conference call that “we definitely consider them a friend,” noting that TikTok uses Snap’s app-development tools and advertises on Snapchat.

(Updates with comment on TikTok competition in final paragraph)

To contact the reporter on this story: Sarah Frier in San Francisco at sfrier1@bloomberg.net

To contact the editors responsible for this story: Jillian Ward at jward56@bloomberg.net, Molly Schuetz

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.