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Snap sales beat estimates as digital ad spending rebounds

Snapchat app icon
Snapchat features such as animated overlays on photos and videos are becoming increasingly serious tools for advertising and communication as the pandemic limits in-person interactions.
(Richard Drew / Associated Press)

Snap Inc.'s stock price surged more than 20% in after-hours trading after the social media company reported quarterly revenue and user growth that topped estimates, fueled by advertisers’ stepped-up spending and consumers’ increased use of their phones for messaging and entertainment during the pandemic.

The Santa Monica company, which makes the Snapchat mobile app for sending disappearing photos and videos, said third-quarter sales rose 52% to $678.7 million, far exceeding the $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 to be just for fun — such as animated overlays on photos and videos — are becoming increasingly serious tools for advertising and communication as COVID-19 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 didn’t happen. 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,” Ron Josey, an analyst at JMP Securities, said 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.”

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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 led advertisers to reevaluate how they were spending their money on social media.

Shares of Snap climbed above $35 in extended trading, on course for a record high, after closing down 0.7% at $28.45. The stock is up 74% so far this year.

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

The company said that if the positive advertising trends continue, fourth-quarter revenue may jump 47% to 50% from the same period last year. 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 a statement. “It is not clear at this time whether that key source of advertising demand will materialize in the same way this year.”

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


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