Snapchat halts decline in users; stock surges in after-hours trading

Snap Inc. CEO Evan Spiegel arrives to ring the bell at the New York Stock Exchange in 2017.
(Carolyn Cole / Los Angeles Times)

Snap Inc. has been facing crumbling investor confidence for months amid a decline in the number of users on its Snapchat platform and a series of high-profile executive departures.

But in its fourth-quarter earnings statement, released Tuesday, the company showed some signs a turnaround might be coming soon.

Snap put a stop to the downward trend in user numbers that had plagued it since mid-2018, posting a stable user base of 186 million daily Snapchatters in the last quarter of 2018. The 2018 dip was widely ascribed to an unpopular redesign of the Santa Monica firm’s disappearing-video app in early 2018, combined with a long delay in updating the company’s clunky Android offering.

Revenue has increased steadily as the company more effectively monetizes its users’ eyeballs with improved ad products. Snap brought in $390 million in the fourth quarter of 2018, up from $297 million in the third quarter and $262 million in the second quarter, totaling $1.2 billion in 2018. The company is not yet profitable, though losses improved from $325 million in the third quarter of 2018 to $192 million in the fourth quarter.

Snapchat’s shrinking user numbers, combined with its loss of top executives and a looming Department of Justice and Securities and Exchange Commission investigation into whether the company misled investors on the question of competition from Facebook’s Instagram service, had shaken investor confidence in the company.


Snap stock, which debuted at $27.09 per share at its March 2017 initial public offering, has lost nearly half its value in the last year. But in the minutes following the release of the company’s fourth-quarter earnings Tuesday, its stock surged more than 20% to $8.46 in after-market trading.

In a call with analysts, interim Chief Financial Officer Lara Sweet said that the company would probably see a dip in revenue for the beginning of 2019 after the high-traffic holiday season, but she was “cautiously optimistic” that user numbers would remain stable.

Some analysts emphasized the cautious half of that sentiment.

“The reality is the stock was one of the worst performing names in the last year. It got completely washed out,” said Brent Thill, an analyst with Jeffries. “I would say this is a step in the right direction, but there is a long way to go — this is effectively step one of a 10-step diet plan.”

But others leaned toward uncut optimism.

Michael Pachter, an analyst at Wedbush Securities, said he was glad to see the stable user numbers quell concerns that the success of Instagram had stolen Snapchat’s user base.

“The bears concluded that Instagram Stories’ growth came at Snap’s expense,” Pachter said. “They’re wrong, and Snap proved that today with a stable [daily active user] number.”

An updated and more responsive Android version of Snapchat is seen as key to moving beyond stability to user growth. On the call, Snap Chief Executive Evan Spiegel reassured investors that the company has shifted “most of our resources internally” to building the long-awaited Android app revamp, code-named “Mushroom.” He added that it’s showing speed improvements in early tests and is already being deployed to a small percentage of users.

“I will say I’m very excited about the Android opportunity,” Spiegel said. “There’s roughly 2 billion people who are on Android and don’t have Snapchat, so if we can take a few percent market share there, it’d make a real difference to our user base.”

Now Snap’s task is to start making more money off its millions of users.

The company’s user base remains large by any standard — Snap reports that it was able to reach 70% of the entire U.S. population between the ages of 13 and 34 with video ads each month. But Snap charges far less for ads than its rival Instagram, whose Stories video feature is widely seen as a clone of Snapchat’s platform.

Snap ads cost around $1.25 per thousand impressions, while Instagram’s Stories ads cost more than $5 for the same. On a recent call with investors, Facebook Chief Operating Officer Sheryl Sandberg said Stories ads are currently underpriced, pointing to a possible path for Snap’s similar offerings to start generating more cash.

Twitter, a similarly struggling competitor, is on track to bring in close to $3 billion in revenue in 2018, with an estimated daily active user base smaller than Snap’s.

“If Twitter can do $3 billion, so can Snap,” Pachter said.

As the company pushes for a goal of full-year profitability in 2019, it will do so with some big gaps in top leadership roles.

At least 11 senior Snappers have headed for the exits in the last six months, including Tim Stone, who left a job at Amazon to serve as Snap’s chief financial officer for just eight months before leaving in January.

In the face of that exodus, Spiegel struck a positive tone. “If we look at the development of the leadership team over the last year, it made a massive difference in the business and for me personally,” Spiegel said. “Now I’m freed up to do what I love on the product side.”

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