Snap Maintains User Numbers, Aims for Profitability in 2019

The number of Snapchat app users will remain the same this quarter, news that was a relief to investors and helped propel Snap shares up 22 percent, to $8.62 in after hours trading. Since it went public in March 2017, Snapchat has competed with Facebook’s Instagram, which adopted many Snapchat features. Snap also redesigned the app, to the dismay of some advertisers and users. In Q4, Snap, with 186 million daily active users, was on a par with the previous quarter, although down one million from the same period a year ago.

Reuters reports that, “analysts’ average expectation was 184.91 million, according to Refinitiv data.” “We do not foresee a sequential decline in daily active users in Q1 2019,” said Snap interim chief financial officer Lara Sweet, but she didn’t reveal any “specific outlook on user numbers.” Although Snapchat’s user base is holding its own after three consecutive quarters of decline, the company share price is “still less than half the $17 initial public offering price.”

Not all analysts are convinced that the company is out of the woods. “Snap’s biggest issue continues to be that it lacks appeal beyond its core user base and has no visible direction on how to expand or pivot its app beyond that under-35 demographic,” said Forrester marketing analyst Jessica Liu.

Chief executive Evan Spiegel said that Snap is now introducing “its new Android app to a small percentage of Snapchat users,” since the original Android app was buggy and “a worse user experience than its Apple iOS app.” In developing nations where phones running on Android are more pervasive than iPhones, “the revamped app is key to gaining new users.”

Spiegel noted that there are “roughly 2 billion people (internationally) who are on Android and do not have Snapchat,” adding that, “if we can take even a small percentage of that, it would make a big difference.”

Snap beat Wall Street expectations with revenue, which increased 36 percent to $389.8 million versus an “average” estimate of $377.52 million. Average revenue per user was up to $2.09 in Q4, from $1.53 in the same quarter a year ago. Unskippable commercials on its original shows on the Discover page helped earnings. Spiegel noted that the Discover page is now personalized for every user, “which could attract more advertisers who were previously worried about their ads appearing next to unsuitable content.”

Spiegel wrote in a leaked internal memo that he set a goal for profitability by end of 2019, and Wedbush Securities analyst Michael Pachter believes that, “Snap will reach breakeven by the end of this year.” Snap said it anticipates “revenue of $285 million to $310 million” for Q1 this year, compared with “the average analyst estimate for revenue of $307 million, according to data from IBES Refinitiv.”

Related:
Snap Stems the Flood of Users Leaving Its App, The New York Times, 2/5/19