Snap Just Grew Users for the First Time in a Year

The improved Android version of Snapchat is already paying off.

Evan Niu
Evan Niu, CFA
Apr 24, 2019 at 3:10PM
Technology and Telecom

After struggling throughout most of 2018 in large part due to a controversial redesign that users hated, Snap (NYSE:SNAP) has seemingly regained its footing. The Snapchat parent just reported first-quarter earnings results, and they showed meaningful progress on a number of fronts. Snap is also trying its best to keep costs in check, which is helping it reduce its operating losses.

There's still plenty of red ink, but things are getting better.

The examples of group calling interface on Snapchat

Image source: Snap.

Return to user growth

Revenue in the first quarter jumped 39% to $320.4 million, while total costs and expenses rose just 2%. That allowed Snap to reduce its operating loss to $316.1 million. Net loss also shrank to $310.4 million, or $0.23 per share. On a non-GAAP basis, the company's adjusted net loss narrowed to $130.9 million, or $0.10 per share.

Snap added 4 million daily active users (DAUs) during the quarter, the first time it has added users since Q1 2018. The user base had declined throughout the first half of 2018 before starting to stabilize, and Snap's efforts to improve the performance of its Android app are now starting to pay off. CEO Evan Spiegel said in February that Android "is absolutely critical to our strategy," as most users in emerging markets are on that mobile platform.

Chart showing Snapchat DAUs

Data source: SEC filings. Chart by author.

"As of the end of Q1, our new Android application is available to everyone," Spiegel said on the conference call yesterday. "Compared to the prior version, it is 25% smaller, opens 20% faster on average, and is modularized to allow for efficient ongoing innovation. On some of the lowest-performing devices, this resulted in a 6% increase in the number of people sending Snaps within the first week of upgrading to the new Android build."

Monetization is also improving, with average revenue per user (ARPU) jumping from $1.21 a year ago to $1.68 in the first quarter. As usual, North America is carrying the top line.

Region

ARPU

Revenue

North America

$2.81

$226 million

Europe

$0.77

$47 million

Rest of world

$0.97

$47 million

Total

$1.68

$320 million

Data source: Snap.

Looking ahead

Snap earlier this month announced that it was getting into the mobile gaming business, as well as launching an ad network that would let it place ads in third-party apps, expanding its reach even in the absence of user growth. These are long-term strategies that Snap hopes can help grow and diversify the advertising business.

"As far as the diversification of where we run our advertising, we're very fortunate to continue to have these innovative areas such as games and the forthcoming Audience Network of course," Chief Business Officer Jeremi Gorman said. "As we continue to grow DAU, there are more opportunities to show more ads, more Story ads, for instance."

For the second quarter, Snap's guidance calls for revenue of $335 million to $360 million, with adjusted EBITDA of negative $125 million to negative $150 million.