Snapchat has a reputation. Yes, for sexting, but also for its inability to impress investors. That narrative changed on Tuesday after Snap Inc. scored a massive beat on its quarterly earnings report, recapping revenue and user growth 2017.
To the surprise of investors, Snap reported that both its user growth and revenue growth are accelerating. The company brought in $285.7 million, beating expectations of $252.8 million. The app now reaches 187 million daily active users, up from 178 million in the last quarter and a bump of 18 percent year over year.
Snap CEO Evan Spiegel pointed to his willingness to change the company and the product.
“Our work during 2017 is proof that we aren’t afraid to make big changes for the long-term success of our business,” Spiegel said in his prepared remarks. “We redesigned the Snapchat application, transitioned our Snap Ad business to an auction model, and made changes to our team to improve productivity and collaboration.”
These financial and growth achievements come after months of a declining stock, news of top talent leaving the company, and concern of older users fleeing to Facebook’s Instagram Stories. The highly anticipated redesign, teased to analysts at its third quarter earnings call, has been met with criticism from early users.
And yet, Snap is soaring. The company’s stock shot up by more than 27 percent in after-hours trading.
“Nice revenue quarter,” one of the analysts said on the call before asking more about the growth and ad opportunities.
“Congrats on the solid results,” Matt Diamond of Deutsche Bank said later in the call.
Snapchat executives emphasized that not every quarter may look this glorious.
“We are a brand business, and we do believe that the brand business seasonally peaks in the fourth quarter,” said Drew Vollero, Snap’s chief financial officer. He also noted that the company’s revenue from Spectacles, its video camera sunglasses, should decrease in the coming quarters. It brought in $8 million in the first quarter of 2017.
Of course, not every high number is great. Snap continues to have high spending, losing nearly $350 million in the fourth quarter of 2017. At least, spending is lowering from the previous quarters, and Spiegel acknowledged that the company had rapid hiring. Over the last two years, Snap hired more than 2,400 employees, about 100 per month. Now, Snap is focused on developing the in-house talent.
“While it was critical to build our team to keep pace with the growth of our business, it has become clear that we can now unlock substantially more productivity simply by changing the way that we work and by continuing to build an inclusive and creative culture,” Spiegel’s prepared remarks reads.
‘Chopping a lot of wood’ = Android
Android helped drive Snapchat’s growth over the past year. The retention rate of new Snapchat users on Android increased by nearly 20 percent compared to the year prior, according to Spiegel’s prepared remarks. On the call, Spiegel emphasized that he has been preaching that focus for awhile, and it has paid off.
“On the DAU side obviously,” Spiegel said with a laugh, “in 2017 we talked a lot about Android … streaming is making a huge different. I think that’s a great step in the right direction, especially with the redesign. We’ve been chopping a lot of wood on that.”
Snapchat’s other big investment is a redesign. So far, the app’s redesign is out to 40 million Snapchat users, Spiegel said in the call, and it’s expected to reach all users by the end of the first quarter. Users who have the redesign told Mashable last month that they weren’t happy but some acknowledged it simply takes some adjustment.
The redesign is faring well, according to Spiegel. The prepared remarks included that during these tests its been increasing Snapchat usage among older users.
“Compared to the old design, core metrics around content consumption and time spent in the redesigned application are disproportionately higher for users over the age of 35, which bodes well for increasing engagement among older users as we continue to grow our business,” Spiegel’s prepared remarks reads.
Adding and retaining users is great to keep eyes and attention on Snapchat, but the driver of Snap’s business is good advertising. Snap has been opening up its ad system to be easier to use and more accessible.
Snap doesn’t want to completely open themselves up, but they’re growing and offering more products. For example, advertisers can buy a Promoted Story and says users are watching their Stories for more than 10 seconds on average.
“Anyone can buy through our platform and buy advertisement,” said Imran Khan, Snap’s chief strategy officer. “With our strength in the millennial market … we’re really excited with what we can offer. That’s a great way to grow our business without compromising potential privacy issues.”
Snap Maps, the app’s visualization of curated Stories on a map of the world, also has the potential to add ads, whether it be ads within Stories or Promoted Stories on the map. But that remains untapped, and Spiegel told analysts there’s “nothing to share on that front.”
“We’re trying to stay way ahead of the curve.”
Snap is also continuing to grow Discover, its network of media partners including Mashable. Discover itself generated $100 million in revenue for its dozens of partners in 2017. Starting this week, Snapchat launched its Stories for the Winter Olympics with NBC, BuzzFeed, and the International Olympics Committee as official partners.
But one narrative that Spiegel continues to stress is Snapchat isn’t just for TV-like content. The core focus is friends.
“What we’re trying to say is there’s a really big difference between talking to your friends on the telephone and broadcasting on a TV channel,” Spiegel said. “For us, as we evolve the product, this allows us to reinforce the great things about our communication product.”
Facebook CEO Mark Zuckerberg has a similar mission with a new focus on “meaningful” connections and the rise of Facebook Watch. But Spiegel’s feelings are summed up quite nicely with this line from the call: “We’re trying to stay way ahead of the curve.”