Less than a year after Snapchat’s parent company went public with a flop, Snap Inc. is finally hinting at the possibility of a rosier future after posting surprising quarterly revenue- and user-growth that beat Wall Street’s expectations for the first time ever.
On Tuesday afternoon, Snap said fourth-quarter revenue jumped 72% year-over-year, to $285.7 million, along with adjusted loss of 13 cents per share, compared to analysts’ revenue forecasts of $253 million and a 16 cent per share loss. Meanwhile, ephemeral messaging service Snapchat also saw its user base grow faster than expected, adding 8.9 million daily active users to reach 187 million, the biggest quarter-to-quarter jump since the third quarter of 2016.
The positive news sent shares of Snap soaring more than 23% in after-hours trading on Tuesday to $17.32, as investors showed renewed confidence in Snapchat’s ability to add new users to help it compete with larger social media rivals like Facebook and Facebook-owned Instagram. Investors had been concerned that Snapchat’s user growth rate would continue to slow amid mounting competition from Facebook and its subsidiary, especially since Instagram’s 2016 launch of its Snapchat-copying Stories feature.
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While Snapchat has long been considered popular among younger users, the service must prove it can also appeal to users in older demographics in order to drive further growth and appease advertisers looking to reach users with more spending power. To that end, Snapchat has been teasing a redesign of its mobile app aimed at attracting older users by making it easier to use.
News of the redesign initially spooked investors, and the changes have only trickled out to small test groups, so far. But CEO Evan Spiegel offered reassurances in a letter to investors on Tuesday in which he said that tests of the redesign led to users watching more Stories from media companies and spending more time viewing ads.
“We believe that the redesign has also made our application simpler and easier to use, especially for older users,” Spiegel wrote. “Compared to the old design, core metrics around content consumption and time spent in the redesigned application are disproportionately higher for users over the age of 35, which bodes well for increasing engagement among older users as we continue to grow our business.”
While reports last month suggested that users were responding negatively to Snapchat’s redesign, Spiegel expressed confidence today that the changes will help the company continue to build on its most recent quarter of user growth, and thus boost revenue.
