Snap Inc. returned to revenue growth in the third quarter after two periods of declines, showing the long-running improvements to its digital advertising business are finally paying off. The company cautioned, however, that the progress may be blunted in the current period by advertiser delays spurred by the war in Israel and Gaza.
Sales increased 5.4 per cent to US$1.19 billion in the period ended Sept. 30, Snap said Tuesday in a statement. Analysts, on average, projected a revenue decline of 2 per cent, according to data compiled by Bloomberg.
Snap has spent much of the year working to revamp the advertising business on the Snapchat app in an effort to reverse a slowdown in sales. It’s part of a strategy the company announced last year to target investments and projects that can directly boost revenue.
“We are focused on improving our advertising platform to drive higher return on investment for our advertising partners, and we have evolved our go-to-market efforts to better serve our partners and drive customer success,” Chief Executive Officer Evan Spiegel said in the statement.
Snap is more than a year into an overhaul of its business. It found early success in its subscription offering, Snapchat+ — unique among the social media industry — which already has more than 5 million subscribers paying $3.99 for early access to in-app features. Meanwhile, more than 200 million people have sent over 20 billion messages to its My AI chatbot, which can help drive engagement on the app.
Not every diversification venture has been successful. Last quarter, the company closed a new division focused on making augmented reality services for businesses. The aim was to let retailers adapt Snap’s AR technology for their own websites, but the company ultimately realized that the cost and complexity required wasn’t worth it.
The company said it has seen a “large number” of brand-focused advertising campaigns pause in the third quarter after the start of the Israel-Hamas war, and expects this delay could continue into the fourth quarter. As a result, Snap said it would be “imprudent” to provide a formal outlook for the current quarter, although its internal forecast sees revenue growth of $1.32 billion to $1.38 billion, which would be an increase of 2 per cent to 6 per cent. That compares with the average estimate of $1.34 billion.
Investors are looking at Tuesday’s results from Snap and digital ad giant Alphabet Inc. for clues on the health of the market. While results from Alphabet’s cloud business disappointed, ad revenue from its Google and YouTube units topped analysts’ estimates. That signals that marketers are more willing to spend than expected, even in the face of inflation and the wars in Ukraine and Israel. Meta Platforms Inc., which generates almost 98 per cent of its revenue from digital ads, reports results Wednesday after the close.
The shares quickly rose as much as 24 per cent in extended trading before giving all of the gains back. The stock closed at $9.70 in New York and has climbed 8.4 per cent this year.
Snap also announced the retirement of its Chief Operating Officer Jerry Hunter, who has served in that role since 2022. Hunter, formerly senior vice president of the engineering team, was given the job of bringing the technical and advertising sides of the businesses closer together to help overhaul Snap’s ad business. His responsibilities will be transitioned to other executives by the end of the month, though he will remain with the company and assist with the transition through July 1.
The Snapchat app is used by 75 per cent of 13- to 34-year-olds in more than 25 countries to send disappearing messages and share videos with special effects. The company said it had 406 million daily active users in the quarter, an increase of 12 per cent from a year earlier. Snap said it expects daily active users to climb to a range of 410 million to 412 million in the current quarter.
In the third quarter, Snap posted a net loss of $368.3 million, which was less than analysts’ average estimate of $397.8 million. The company’s board authorized a stock repurchase plan of as much as $500 million.
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