Snap's 2Q user growth tops expectations

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Snap (SNAP) beat revenue estimates and added more users than expected in its fiscal second quarter, reflecting the company’s efforts to attract and retain users on the Snapchat platform through new content developments and an Android app upgrade launched this spring.

Here were the main numbers from the report, compared to consensus expectations compiled by Bloomberg:

  • Revenue: $388 million vs. $360.5 million expected

  • Adj. loss per share: 6 cents, vs. 10 cents expected

  • Daily active users (DAUs): 203 million vs. 191.7 million expected

Shares of Snap climbed 11.5% to $16.55 each as of 4:24 p.m. ET.

DAUs, or users who opened the app at least once a day, were a key focus for the Street, with Snap just recently turning stagnant growth into gains. The company exited the first quarter with a better-than-expected 190 million DAUs, an increase from the quarter prior but slight decrease from the year earlier. The quarter before that, Snap’s DAUs came in flat sequentially, besting expectations for a quarterly decline.

Snap’s addition of 13 million DAUs in the second quarter represented the highest net add since 2016.

The Santa Monica, California-based company also showed evidence it was better monetizing its users, with average revenue per user (ARPU) increasing 37% to $1.91. North American ARPU posted the biggest gains since the second quarter of 2017, climbing 42% over last year to $3.14.

During a call with investors Tuesday, Snap CEO Evan Spiegel said more than 75% of the 13- to 34-year-old population in the U.S. is active on Snapchat, making the platform “larger than services like Facebook and Instagram” among this audience.

U.S. Snapchat users who joined 5 years ago and were active at the end of their first year have retained at a more than 95% annualized rate, he added.

“We believe this high retention rate underscores the important role Snapchat plays in the lives of the people who use our products,” Spiegel said.

Snap pointed to further strength in the current quarter, delivering guidance that topped the Street’s expectations. Snap sees third-quarter DAUs in a range of between 205 million to 207 million, better than the 193.4 million consensus estimate. And Snap guided for third-quarter revenue of between $410 million and $435 million, ahead of the $402.9 million expected.

Investors had been looking for Snap to post second-quarter results that would justify its more than 160% stock run-up this year, which has coincided with new content features helping keep users – and advertisers – coming back to the platform.

Snapchat Daily Active Users
Snapchat Daily Active Users

During the three months to June, Snap announced the launch of Snap Games, allowing users to play games with friends on Snapchat without leaving the app. The company also introduced viral lenses allowing users to swap genders or reconfigure their faces to look a different age. Snap’s management suggested Tuesday that they would continue to lean into the app’s augmented reality (AR) developments.