Spanchat CEO and Co-Founder Evan Spiegel speaks during the Disrupt SF 2019 conference in Moscone … [+]
Rewind a few years and something seemed very wrong with Snap Inc.
In 2018, the Android app wasn’t working very well, a definite problem when more than two-thirds of the world aren’t using an iPhone. A redesign failed and there was a brain drain, including senior executives like Imran Khan, the former chief strategy officer who went to start an e-commerce startup. Instagram had swept and improved its Stories feature, reducing the appeal of Snapchat. Meanwhile, the newly listed company missed the performance milestones promised by Wall Street, frustrating watchers who can help sway the public’s perception of a stock and affect how the stock performs. And for a while these stocks seemed to be in an unchecked nosedive. After Snap stock entered the public markets for $ 27 per share in March 2017, Snap’s shares fell below $ 6 by December 2018.
It couldn’t look any different at the moment. Snap stock is now trading at a record high: $ 77 per share after the company announced second quarter earnings on Thursday night. As a result, Wall Street’s praise was abundant. A “monster” neighborhood, concluded Cowens John Blackledge. “Great strength all round,” Ygal Arounian wrote in a note to customers who analyzed Snap’s results. Snap CEO Evan Spiegel seems pretty pleased himself. “We are excited about the tremendous opportunity for our business in 2021 and beyond,” he said on a conference call with analysts.
Where Snap once offered disappointment, it now exceeds expectations: Quarterly revenue rose 116% year over year to $ 982.1 million, 16% more than Wall Street had predicted. The company continues to see significant growth in its core market of North America, where sales increased 129% to $ 701.7 million. (As a company gets older, it often hopes to grow in overseas markets.) In Europe, sales nearly doubled to $ 152.3 million. Snap is experiencing strong demand from advertisers and has been able to raise prices in parts of the developed world that pay higher prices.
Another important number – daily active users – has also increased significantly. The company had 293 million such users in the second quarter, an increase of 23%. To go back to the bad old days, when Snap released second quarter results in 2018, its data showed it was losing users, down 1.5% to 188 million.
To keep attracting users, Snap put a lot of emphasis on augmented reality and Spotlight, its TikTok competitor. Right now, Snaps AR primarily lets users add photo filters and overlay images to their messages, and around 200 million people are using Snap’s AR technology every day, according to the company. But the company sees a bigger role for AR and wants to develop technologies that allow people to shop virtually, maybe see themselves in a shirt, or what a chair would look like in a home. On Thursday’s conference call, Snap’s chief business officer, Jeremi Gorman, summed up the opportunity: “Brands urgently needed replacements for malls and showrooms.” (There’s also Snap’s latest attempt at AR-powered glasses, the Spectacles announced at a corporate conference in May.)
As for Spotlight, the company said the daily time spent on this part of the app increased by 60% but doesn’t provide any more specific information. Snap kept the details of Spotlight vague than in the past, providing growth percentages rather than exact numbers. One thing is certain: it doesn’t throw quite as much on Spotlight as money. It had sent Spotlight $ 1 million a day and distributed the money to the users with the most popular videos. But the company changed its approach, spending $ 76 million on Spotlight last quarter, down about 15% from the previous quarter.
Spotlight was initially a loss leader designed to keep TikTok in check. The company has yet to start selling ads within Spotlight, but is expected to start soon. Spotlight sets up a completely different area of the app where users are encouraged to interact with stranger’s content, not just their friends’ messages. “Spotlight,” said Spiegel on Thursday, “really opened up a whole new canvas for us to explore this way of distributing content and actually helping people find things.”