Snap adds record 13M users in Q2 as revenue jumps 48%

Brief:

Snapchat parent company Snap Inc. boosted its user base by 8% to 203 million in Q2 this year — handily beating estimates of 192 million — from a year earlier as app improvements and management changes led to a jump in revenue, according to a quarterly conference call with analysts on Tuesday night. The addition of 13 million users during the quarter marked its best performance since going public two years ago.
Revenue in the quarter surged 48% from a year earlier to $388 million, beating the average estimate of $360 million among more than two dozen Wall Street analysts. The company forecasts Q3 revenue of between $410 million and $435 million, which would beat its quarterly record of $389.8 million in Q4 2018.
Snap's loss narrowed to $255 million from $353 million a year earlier, better than the consensus estimate of $298 million. The company hasn't yet reported a profit since its IPO, but CEO Evan Spiegel has said his "stretch" goal is to be profitable this year, The Wall Street Journal reported.

Insight:

Snap's Q2 results indicate that improvements reported in the prior quarter are gaining momentum, which should give marketers more confidence to advertise on the image-messaging platform. Brands are hungry for a digital ad alternative to Google and Facebook, the "duopoly" whose bigger competitive threat in the past two years has come from Amazon's blossoming ad platform.

When Snap went public two years ago amid surging user growth, it had been heralded as a possible threat to the duopoly. But the company lost significant momentum in 2018 after an app redesign alienated many users. Meanwhile, ByteDance's TikTok has raced ahead to rack up 1.2 billion downloads, making it one of the most popular social media apps worldwide, per researcher Sensor Tower. The social video app is developing a strategy that aims to appeal to advertisers and monetize its massive user base.

For Snap, strong Q2 results are a sign that several recent initiatives are starting to pay off, especially its refreshed Android app. The overhauled app opens faster and has fewer bugs than a prior version that reportedly dissuaded some people from using Snapchat. Downloads of Snapchat's Android app surged 37% in Q2 from a year earlier, per research firm SimilarWeb. The new Android app has seen a more than 10% gain in the retention rate of people who open Snapchat, Snap CEO Spiegel said in prepared remarks Tuesday night. New Android users are sending 7% more posts on the revamped app than on the old one, a key indicator of long-term retention, he said.

"The improvements we've made on Android have now made our product available to a much larger subset of the smartphone population globally," Spiegel said in the quarterly conference call.

Researcher eMarketer in April forecast that Snapchat's U.S. user base would shrink this year as mobile users spent more time on rival Instagram. Snapchat defied that estimate by reporting a 3% gain in its North American user base for a record 83 million, a 5% increase in Europe to 64 million and a 21% jump elsewhere to 56 million.

Throughout Q2, Snap announced ways it's working to boost app engagement, but those plans are still in their early stages. At its first Partner Summit in April, the company unveiled Snap Kit features such as capabilities to let third parties integrate Snapchat Stories into their independent apps. The company also announced a multiplayer gaming platform and a slate of original, mobile-first shows. This month, Snap expanded its lineup of vertical video programming with shows from actor and former California Gov. Arnold Schwarzenegger, tennis champion Serena Williams and comedian Kevin Hart.

Like TikTok, Snap is popular among U.S. teens, which can be a double-edged sword for platforms. Snap claims it reaches 90% of 13- to 24-year-olds, making it more appealing to brands that want to cultivate their next generation of consumers and to creators who seek audiences they can't find among traditional media channels like TV. While teens may influence the purchase decisions of their parents, they also have notoriously fickle tastes, making it challenging for brands to reach them and drum up loyalty. Brands are still cautious about the safety of TikTok amid accusations the app is violating children's privacy and showing "objectionable" content. TikTok now restricts downloads for kids under 13 as part of a settlement with the U.S. Federal Trade Commission.