Snap (NYSE: SNAP) delivered better than expected third-quarter results and posted strong figures in terms of user growth and ad spending. The strength in ad spending lifted all social media stocks higher as the Global X Social Media ETF (NYSE: SOCL) finished 4.5% higher. Snap's stock closed 28% higher, breaking out to new highs.
Inside the Numbers
In the third quarter, Snap's net loss declined to $200 million which was a 12% improvement from last year's Q3 loss of $227 million. The company reported 249 million daily active users which topped analysts' expectations of 244 million, an increase of 4% from the last quarter, and 19% from last year. Revenue came in at $679 million which beat expectations of $556 million. The average revenue per user was $2.73 which was significantly higher than expectations of $2.27.
Management also made positive comments that its augmented reality features were growing increasingly popular. Snap has already added support for the iPhone12 Pro and Pro Max's (NASDAQ: AAPL) camera which is expected to deliver an even more immersive, AR experience.
For the fourth quarter, Snap expects this positive momentum to continue as it's forecasting 47 to 50% revenue growth and grow to 257 million daily active users. Another big takeaway is that ad spending on the platform increased by 52% which is a strong bounceback to the pre-coronavirus trajectory. It's a sign that brands are beginning to spend aggressively on online advertising which had been depressed for the coronavirus. As a result, ad stocks like Facebook (Nasdaq: FB), Twitter (Nasdaq: TWTR), Google (Nasdaq: GOOG), and Pinterest (Nasdaq: PINS) were all higher across the board.
Stock Price Impact
The earnings season marked Snap's stock breaking out to new, all-time highs. The company had IPO'd in at $24 in 2017. From there, it consistently trended lower until it bottomed around $5 in late-2018. Since that low, the stock is more than 600% higher.
The stock's move lower came as it was dealing with slowing growth and fears that it would never be able to validate its rich valuation. However, Snap's product kept improving even though its growth did slow, it was able to get better at monetizing its users. Further, its users were very active on the platform in terms of engagement and time spent.
Additionally, Snap has some "moonshots" that could result in big gains for its business down the road. It has "Snap Minis" which are mini-apps that can be built on top of the Snapchat app. The other opportunity is in augmented reality, where the company has been one of the leaders in terms of creating a unique experience for users, and one that can then be leveraged into advertising opportunities. The recent movement in the stock price ensures that Snap will have enough resources to pursue this vision.