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Snapchat user growth accelerates after Android fix

Snapchat
Snap Inc. CEO Evan Spiegel
(Jae C. Hong / Associated Press)

Snapchat’s growth accelerated after the social media company rolled out an improved version of its Android cellphone app, a sign of recovery after a rocky period.

Snapchat, the messaging and photo-sharing app owned by Snap Inc., said an average of 203 million users logged in daily in the second quarter, ahead of the 191.7 million estimated by analysts. In a statement on Tuesday, the Santa Monica-based company also said sales in the period jumped 48% to $388 million, topping the $360.5 million average projection, according to a Bloomberg survey. Shares jumped more than 9% in late trading following the report.

After a disastrous redesign that alienated users last year and the turnover of most of its executive leadership team, Snap is finally delivering on longtime promises that a new version of Android would shore up user growth. The company also gave an upbeat forecast, saying it expects daily users of 205 million to 207 million in the third quarter. Investors have recently turned more optimistic about the company’s prospects, and the stock has more than doubled this year.

“Completing these transitions has established a strong foundation for growing our community, increasing engagement, and growing advertiser demand,” Chief Executive Officer Evan Spiegel said in prepared remarks.

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Spiegel isn’t just trying to move past Snap’s own growing pains — he’s dealing with an increasingly competitive landscape, with Facebook Inc.’s apps copying some of his most popular inventions. Android phones are more popular in emerging markets, where Snap usage isn’t as saturated, and where Instagram’s version of Snap’s popular stories feature is taking hold.

“We don’t see anything on the horizon that would change [Instagram’s] dominant grip and continued capture of incremental stories’ users,” said Mark Zgutowicz, an analyst at Rosenblatt Securities, in a note to investors.

That’s why Snapchat needs to focus on growing in other ways, by drawing users in with new games, media content, and ways for people to manipulate their appearances, Zgutowicz said. In April, the company added more advanced ways for users to take videos. In May, Snapchat added a gender-swap filter, which would allow people to see what they’d look like as a member of the opposite sex.

“Does that gender-swap feature have staying power? No,” Zgutowicz said. “But it brings people to the platform and they continue to use it.”

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Facebook and Instagram swelled in popularity by relying on the network effect — the more people who use an app, the more people it will draw in and the more staying power it has. Snap is taking a riskier approach, focusing less on network size and more on creative content to keep people entertained as they communicate. The company is also touting its reach among young audiences, counting among its users 90% of the 13- to 24-year-olds in the U.S.

Seeking to increase its ability to sell ads to an even larger audience, the company is testing a new system, announced in April, that will allow its ads to run on a network of apps that it doesn’t own. The company’s net loss in the second quarter narrowed to $255.2 million, or 19 cents a share, from $353.3 million, or 27 cents, a year earlier. Snap also forecast third-quarter sales of $410 million to $435 million, exceeding the average analyst estimate of $402.9 million.

Frier writes for Bloomberg.


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