Snap (SNAP) stock’s turnaround is in the limelight after a rollercoaster 2018. Since the start of the year, the stock has more than doubled in value. In addition, it is showing no signs of slowing down after reporting impressive second-quarter financial results. The stock has continued to outperform Facebook and Twitter, which are up for the year.
Blockbuster Q2 financial results are the latest catalyst fueling Snap’s upward momentum. Likewise, three consecutive quarters of negative growth ended in the second quarter of 2019. The company surprised everyone by reporting an increase of 13 million DAUs in the second quarter. In contrast, the company added 4 million DAUs in the first quarter of 2019. An increase in DAUs continues to accelerate revenue growth from advertising.
In addition to revenue growth, the fact that Snap is on the path to profitability also continues to excite investors. Critically, net loss narrowed in the second quarter to $255 million compared to a net loss of $353 million generated a year ago. In contrast, analysts were expecting a net loss of $298 million.
Snap also received a boost on the company achieving significant progress in stemming operational costs. The cost to deliver a snap, as well as an impression, is on the decline, according to CFO Derek Andersen.
Snapchat App Enhancement impact
A positive earnings report is not the only catalyst behind Snap’s turnaround. The social networking app gaining more bargaining power with advertisers also continues to trigger renewed investor interest. The unveiling of a redesigned Android app has helped boost engagement and retention rates. Consequently, the company has succeeded in attracting more advertising dollars.
“The enhancements we have made to our advertising business and self-serve platform meant that we were better able to monetize this increased engagement, leading to accelerating revenue growth,” said CEO Evan Spiegel.
Advertisers are no longer looking at Google, Amazon, and Facebook only. Likewise, Snap has emerged as a force to reckon with in the lucrative business. Improved engagement levels on the app thanks to the new app has helped Snap move up in the category.
SNAP expands in key demographics
Instead of trying to attract all users, SNAP has sought to engage a younger demographic base. The strategy is already bearing fruit, consequently helping accelerate Snap stock’s turnaround. For instance, the app’s daily active users increased 7% sequentially and 8% annually to clock highs of 203 million. The increase has made Snapchat an attractive advertising base.
Snap has also emerged as an important advertising base for advertisers looking to reach out to people between the age of 13 and 34 years. Consequently, the average revenue generated per user is on the rise. The average revenue per user stood at $1.91 in the second quarter compared to $1.84 expected by analysts.
In addition to user growth, the augmented reality technology in use also continues to excite advertisers. The use of augmented technology has helped boost engagement levels on the apps. For starters, the technology has given rise to fresh Discover content as well as original videos. In addition, AR lenses and games have helped keep users on the app much longer, which is ideal for attracting add dollars.
Snap stock’s turnaround should continue to pick up pace as the networking app continues to enjoy increased impressions and engagement levels. In addition, better-than-expected third-quarter guidance affirms the company’s growth trajectory.
The company expects Q3 revenue to come in between $410 million and $435 million compared to $388 million in the second quarter. Daily Active Users should also continue to increase as the company expects 205 million to 207 million DAUs in Q3.