Snap Reports Strong Quarterly Results

By Sheila Dang

(Reuters) – Snap exceeded Wall Street expectations for both quarterly revenue and user growth on Tuesday. The parent company of the messaging app Snapchat successfully attracted back some advertisers through enhanced ad features.

Share Repurchase Program

Snap also announced a share repurchase program of up to $500 million.

Initially, shares of Snap fell 8% in after-market trading but then rose 10% to $12.

Competitive Landscape

The Santa Monica, California-based company earns most of its revenue from digital advertising and has long faced challenges from larger competitors like Facebook and Instagram's parent, Meta Platforms (NASDAQ:META). To better compete, Snap invested in machine learning to improve ad targeting and simplified the advertising process for small- and medium-sized businesses.

Revenue Growth

Revenue in the third quarter, which ended on September 30, grew 15% year-over-year to $1.37 billion, surpassing the average analyst estimate of $1.36 billion. Snap expects current-quarter revenue to be in the range of $1.51 billion to $1.56 billion, with Wall Street targeting the high end of that range, according to Refinitiv data.

The fourth quarter comprises the holiday shopping season, a key period for brands to heavily advertise products and services. However, Snap indicated that demand from large companies has been lower recently, as noted in a letter to shareholders.

New Advertising Formats

Two new ad formats could help stimulate demand from large advertisers, one of which allows businesses to promote themselves on the Snap Map. Snap CEO Evan Spiegel stated during an earnings call, "We're seeing brands try to drive people back into their stores and establishments. The feedback has been great."

User Growth

Daily active users of Snapchat rose 9% year-over-year to 443 million, outperforming analyst expectations of 441 million.

Last month, Snap announced it would start a redesign of Snapchat, streamlining the app from five sections to three. Early tests have shown it has increased usage among individuals who were not previously frequent users, according to Spiegel.

Snap reported adjusted earnings per share of 8 cents during the third quarter, exceeding Wall Street expectations of 5 cents.