Brief:

• Messaging app Snapchat's daily active user (DAU) base rose to 187 million in Q4 2017, compared to 178 million in the prior quarter, beating analysts' expectations by nearly 3 million, Snap Inc. executives told investors in a call Tuesday. DAUs for all of 2017 rose 18% from a year earlier, reversing a trend of slow growth for the social media platform.
• Advertising revenue grew 38% in the last months of 2017 from Q3 for a total of $281 million in Q4. Annual ad revenue climbed 74% year-over-year, said Imran Khan, Snap's chief strategy officer.
• Much of the growth is due to improvements made to the Android version of the app, CEO Evan Spiegel said, as well as to a redesign of the app that rolled out to some users in November and separates professionally produced content from friends' posts. Spiegel announced that the redesign will launch to all users during Q1 this year.

Insight:

While Snap made significant gains in Q4 — the results impressed investors, sending the company's stock soaring to heights it hasn't seen in a while — it's still unclear whether the social app can become a true alternative to Facebook and Google as a digital advertising giant in the months and years to come.

Snap made efforts in the past year to improve the quality of content and experience for users on its app, while also removing some friction for advertisers. Brands continued to spend on the platform in 2017, reversing a slump that plagued the mobile app since it went public last spring. However, in the call to investors on Tuesday, Snap warned that brand spending, which often peaks at the end of the year, could fall again in Q1 and lead to lower revenue to kick off 2018.

"As the business has more scale, we think year-over-year growth is the best metric to look at," said Drew Vollero, Snap's chief financial officer, during the call.

More brands seem to have warmed up to the social media platform since it launched pixel tracking in November to measure smartphone users' actions after seeing an ad, giving marketers stronger first-party measurement options. 

Another change that likely led to a successful Q4 for Snap was a shift toward programmatic ad buying. That change helped reduce friction in the buying process, as well as boost ad impressions on Snapchat by 4x year-over-year, Spiegel said. In Q4, 90% of all ads on the app were bought programmatically, which the company said means that the "auction transition" for Snap Ads is largely in the rearview.

Despite a winning quarter for ad revenue, Snap must continue to stay relevant and focus on innovation to maintain its latest growth trajectory. A major driving factor in the wave of new users, according to Spiegel, is the app's redesign that prioritizes social features like messages and Stories from friends over ads and other professionally produced content housed in the Discover section. The design has only rolled out to 20% of users so far, but of those people, the number who voluntarily watched publishers' Stories in Discover grew by more than 40%, Spiegel said.

Snapchat's app overhaul mirrors recent news from Facebook, which kicked off 2018 with a bang by announcing it would adjust its News Feed algorithm to prioritize posts from friends and family over those of brands and publishers for more meaningful social interactions on the platform. That news sent marketers into a frenzy around the potential drop in reach.