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Wall Street Is Somewhat Hopeful Despite Snap’s User Drop

Wall Street is modestly hopeful about Snapchat’s parent company despite the messaging service experiencing a drop in daily active users during its second quarter.

Snap said Tuesday that it now has 188 million daily active users for the quarter ending on June 30, up 8% year-over-year, but down 2% from the previous quarter. It’s a sign that users are leaving Snapchat after a poorly received redesign of its app to separate personal messages of friends from those from celebrities or media outlets.

Investors closely monitor the number of daily active users of social media services, including those of Facebook and Twitter, because the number highlights their popularity as well as the potential for companies to create online ad businesses around their free services.

Despite Snap’s daily active user struggles, the company’s shares rose .7% to $13.21 in after-hours trading, likely due to the company reporting sales of $262 million in the second quarter, a 44% increase from the same quarter a year earlier. Analysts had expected Snap to report $251 million in second quarter revenue.

Snap also shared financial guidance for its third quarter, something the company hasn’t previously done. It said that it expects $265 million to $290 million in third quarter sales, which it said represents 27% and 39% year-over-year gains.

However, Snap did not say how many daily active users it expects for the third quarter, despite several requests by analysts during a conference call. But Snap CFO Tim Stone added that daily active users in the third quarter “have trended down year-over-year and sequentially.”

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As for one of the company’s positives, Snap said that its retention rate for users over the age of 35 has increased 8% from an unspecified number, which Snap CEO Evan Spiegel attributed to a favorable response to Snapchat’s redesign.

However, Spiegel and other Snap executives did not answer an analyst’s request for Snap to share the retention rates for users under the age of 35. This would be an important metric to disclose, because Snap’s rise is due in part to its appeal to teenagers and young adults.