NEW YORK. October 21, 2020 (Reuters) — Shares of Snap Inc rallied 23% on Tuesday after the Snapchat messaging app owner beat user growth and revenue forecasts as more people signed up to chat with friends and family during the coronavirus pandemic. Daily active users (DAUs), a widely watched metric by investors and advertisers, rose 18% year-over-year to 249 million in the quarter ended Sept. 30, the company said in a statement.
Analysts had expected 244 million, according to IBES data from Refinitiv. The company said it expected continued momentum in user growth and forecast about 257 million daily active users in the fourth quarter, exceeding analysts’ current estimate of 249.81 million. Revenue, mainly from selling ads on the app, jumped 52% to $679 million, widely beating analysts’ consensus estimate of $555.9 million.
Snap has positioned itself as a safe place for brands to advertise because it focuses on one-on-one messages which disappear once they are read. That reputation served Snap well in the third quarter, when over 1,000 advertisers boycotted larger rival Facebook Inc for the month of July in response to issues of hate speech on the platform, and as popular short-form video app TikTok faced the possibility of a U.S. ban over national security concerns.
It opened an opportunity for Snap as companies reviewed their ad spending, and helped contribute to revenue growth, said Jeremi Gorman, Snap’s chief business officer, during an earnings call with analysts. Snap has “unique ad offerings, such as augmented-reality advertising,” that helped its performance, said Debra Aho Williamson, an analyst at research firm eMarketer.
The app has been able to grow its user base outside the United States and Europe by partnering with local telecommunication providers and building features like photo filters and lenses that are locally relevant, Snap Chief Executive Evan Spiegel said during the earnings call. Average revenue per user was $2.73, up 28% from the year-go quarter.
Snap’s net loss narrowed to $199.8 million, or 14 cents per share, from $227.37 million, or 16 cents per share, a year earlier. Snap said current-quarter revenue could grow between 47% to 50% over the year-ago period, but cautioned that it was unclear how the pandemic would affect year-end holiday advertising. Snap rose to $35.00 after closing 0.7% lower at $28.45. Shares of Facebook, Twitter Inc and Pinterest Inc also rose in after-hours trading.