Oh Snap! Shares Soar as Snapchat Reports 9 Million More Daily Users and an Ad Surge

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Credit: Michael Nagle/Bloomberg

Snap shares soared by about 20 percent Tuesday on the strength of its unexpectedly upbeat quarterly report. Snapchat said it added 9 million daily users in the fourth quarter, its largest growth spurt since going public last year.

The company reported fourth-quarter results as Wall Street was looking for signs of life from an app that struggled at points last year. Now, it has 187 million daily active users, up from 158 million a year ago. Also, its $286 million in revenue beat analyst expectations by more than $30 million, a turnaround form the third-quarter when Snap fell short of Wall Street's forecasts.

Snapchat closed the year with $825 million in revenue, which was double the revenue of 2016. Even though the quarterly report provided a lift to Snap's stock, to the tune of more than 20 percent in after-hours trading, the company still operates for a loss and has yet to turn a profit, depsite the revenue bump. It had a net loss of $3.5 billion last year.

The ephemeral messaging app sccessfully wooed more advertisers in the fourth quarter as it became easier to place ads through its still-nascent automated platform, according to Aaron Goldman, chief marketing officer at 4C, which plugs into Snapchat to deliver ads. Snapchat ad spending grew 29 percent, quarter over quarter, through 4C's ad buying platform, Godlman says.

"Snap benefited from some of the seasonality that's expected during the holidays as advertisers heavy up but also saw some new brands come in and test the platform," Goldman says.

In the third quarter, ad prices were driven down by the automated ad platform, because it was cheaper to buy through those programmatic pipes than in direct deals. However, Snapchat expected some relief by seeing more advertisers bidding on ad space.

Goldman says ad prices were increasing, at least through 4C's platform.

For their part, advertisers are starting to see benefits from Snapchat's ad technology investments, according to Phillip Huynh, head of paid social at 360i. Snapchat has been making improvements to its ad offering to catch up with rivals like Facebook, and last year one of the key changes was the introduction of a tracking pixel, a bit of code in the ad that can measure performance and help targeting.

"Now, you can actually measure more on Snapchat," Huynh says. "That's something that hasn't been part of the platform before.

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