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Oct 20, 2020

Snap sales beat estimates on rebound in digital ad spending

A monitor displays Snap Inc. signage on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Friday, May 24, 2019. U.S. equities climbed at the end of a bruising week in which escalating trade tensions dominated markets. Photographer: Michael Nagle/Bloomberg

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Snap Inc. surged more than 20 per cent after the social-media company reported quarterly revenue and user growth that topped estimates, lifted by advertisers’ stepped-up spending and consumers’ increased use of their phones for messaging and entertainment during the pandemic.

The company, which makes the popular Snapchat mobile app for sending disappearing photos and videos, said third-quarter sales rose 52 per cent to US$678.7 million, far exceeding the US$559.2 million average analyst estimate. Snapchat had 249 million daily active users in the quarter, compared with the 244.6 million average projection in a Bloomberg survey.

Features on Snapchat that originally seemed like they were just for fun -- like animated overlays on photos and videos -- are becoming increasingly serious tools for advertising and communication as the COVID-19 outbreak limits in-person interactions. Although Snap had previously warned that the pandemic would curb revenue from fall-season advertising opportunities, such as movie launches and back-to school sales, those slowdowns never happened. A lag in TV production only meant more people tuning into Snapchat’s in-app shows, the company said.

“If people are not seeing each other on a daily basis, they’re relying on these tools to communicate more every day,” said Ron Josey, an analyst at JMP Securities, in remarks before the results were released. It didn’t hurt that Snapchat has dodged the political scrutiny hitting its social-media competitors, he said. “The negative headlines around TikTok and Facebook I imagine have benefited Snap.”

In the third quarter, civil rights groups successfully encouraged hundreds of consumer brands to temporarily boycott advertising on Facebook Inc., the largest social network, over its handling of offensive content and hate speech. The Trump administration also threatened a ban and mandated a sales process for the U.S. operations of TikTok, the video app that’s competing with Snapchat for time and attention among young people. Both actions forced advertisers to re-evaluate how they were spending their money on social media.

Shares of Santa Monica, California-based Snap climbed as high as US$34.88 in extended trading, on course for a record high, after closing at US$28.45 in New York. The stock is up 74 per cent so far this year.

In the third quarter, Snap’s net loss narrowed to US$200 million, or 14 cents a share. Excluding some costs, the company had a 1-cent per-share profit, compared with the 5-cent loss analysts predicted.

The company that said if the positive advertising trends continue, fourth-quarter revenue may jump 47 per cent to 50 per cent from the same period a year earlier. That estimate assumes “that the holiday season materializes in line with what we have experienced in prior years,” Chief Financial Officer Derek Andersen said in his prepared remarks. “It is not clear at this time whether that key source of advertising demand will materialize in the same way this year.”

Analysts on average were projecting a fourth-quarter sales gain of 30 per cent to US$730.3 million, according to a poll by Bloomberg.