More people used Snapchat last quarter although more red ink was spilled

The parent company of social-media app Snapchat, Snap Inc., reported its second-quarter results after the market closed today at 4 pm EDT. During the three months including April, May, and June, Snap reported a 17% hike in revenue year-over-year to $454 million. However, the net loss increased from $255 million during last year’s second quarter to $326 million during the same quarter this year. Snap’s red ink rose 28% from 19 cents per share during the second quarter of 2019 to a loss of 23 cents per share for this year’s second quarter.

The number of Daily Active Users on Snapchat rose 17% year-over-year during Q2

Snapchat had 238 million Daily Active Users during the second quarter, 35 million or 17% more than the 203 million DAUs it reported during the same quarter last year. In North America, Europe, and the Rest of the World, DAUs increased both year-over-year and sequentially during Q2. The number of daily active users also rose year-over-year and sequentially on both the iOS and Android platforms. During the quarter, Snapchat users opened the app nearly 30 times per day on average.

CEO Evan Spiegel says, “We continued to grow our community and business in a challenging and uncertain environment. I am proud of our team for innovating on new experiences for our community and driving value for our partners, demonstrating the importance of our service in people’s lives. We are grateful that the resilience of our business has allowed us to remain focused on our future growth and opportunity.”

Some of the Q2 results released by Snap seem promising as the daily average number of users watching Shows rose 40% year-over year. The daily average of Snapchat users over the age of 35 who were viewing the app’s Discover news feed rose 40% on an annual basis during the second quarter. And Snap also announced expanded multi-year content partnerships with Disney, ESPN, NBC, ViacomCBS, the NBA, and the NFL.

Snapchat has sure come a long way since it was known as the app that automatically deleted photos in 10 seconds leaving no trace of the X-rated material that was just disseminated. A rumor that circulated in 2013 claimed that Facebook offered $1 billion for Snapchat proving that sometimes the best deals you make are the ones that never get done. On the other hand, Facebook made an amazing deal when it purchased Instagram for $1 billion in 2012. At the time, the latter was known for its camera filters and had about 30 million users. In 2016, Instagram stole Stories from Snapchat; these are visual messages that stay on the app for 24 hours. Instagram now has over 1 billion users and a valuation in excess of $100 billion.

Snap CFO Derek Anderson said that the early bounce that Snapchat received when the pandemic forced people to stay at home has ended. Anderson also pointed out that things have yet to return to normal making it hard to forecast what the current quarter’s results might be. He stated that “At the onset of widespread shelter in place orders, as people sought to stay connected and entertained from home, we observed an increase in daily active users that informed our initial estimate. This initial lift dissipated faster than we anticipated as shelter in place conditions persisted. Advertising demand in Q3 has historically been bolstered by factors that appear unlikely to materialize in the same way they have in prior years, including the back to school season, film release schedules, and the operations of various sports leagues. At this point in time it is difficult to predict how these factors may impact advertising demand in the remainder of Q3.” The company said that so far in Q3, revenue is up 32% from the previous year, but it expects that growth to slow down through the rest of the quarter, ending up with an increase of 20% in advertising revenue for Q3.

Investors aren’t grasping the future potential of Snapchat based on the larger flow of red ink. After hours when the report was released, the shares dropped over 6% to $23.20 a share.

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