Snap Inc. stock skyrockets after active user growth, strong earnings report

Credit Michael Nagle  Bloomberg

The additions come after Instagram released its anticipated "Type Mode", which gave users new fonts to play with.

The equation is nearly too simple: If Snapchat can make it easier for people to use its app, more people will use it.

When Snap reported Q3 results in November, it missed analyst revenue estimates widely, and didn't provide guidance for the fourth quarter. That was a marked improvement to what analysts had previously predicted-revenue around $252.9 million and a loss of 16 cents per share.

In addition, quarterly revenue of $253 million would bring its full-year revenue to $793 million.

Revenue's rose tremendously from $165 million a year ago to $285 million this quarter. Not only that, the more competition for Snapchat's inventory, the more bigger brands may need to spend to reach a wide swath of people, since smaller brands are typically willing to pay more per ad to reach a smaller but more specific audience (provided Snapchat continues to prove it has enough users and ad-targeting chops for brands to reach those small, specific audience segments). The figure surpassed analyst's expectations of 184.2 million users. The IPO valued the company at approximately $24 billion, making it the largest valuation for a USA tech company IPO since Facebook in 2012.

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But while Snapchat may still be the go-to place for teens and college students to share photos and short videos with friends, the problem for Snap is that it's hard to monetize that content. The growth rate (5.05%) was the highest it has been since the third quarter of 2016, when it was 7%.

This suggests that the redesign of Snapchat that was unveiled in November by Snap CEO Evan Spiegel is having the desired effect on investors. Then it showed off that redesign to the media later that month. The Discover feature is important because it's where big media players display their content.

"For the first time, revenue in Q4 from advertisers outside of Ad Age's Top 100 exceeded revenue from the Top 100 Advertisers", Imran Khan, Snap's chief strategy officer, said during the conference call. He said that in the context, monetization was "decent", and the progress seems to be mostly coming from momentum among advertisers engaging with the Snap ad auction platform. While it was critical to build our team to keep pace with the growth of our business, it's become clear that we can now unlock substantially more productivity simply by changing the way that we work and by continuing to build an inclusive and creative culture. For instance, Snap revealed that in a test market the number of DAUs using the Discover feed to watch Publisher Stories saw a 40 percent growth with the new design compared to the app's old design. Daily users were up 18% from the year-ago period, to 178 million, adding 8.9 million new users in the quarter, almost double the estimate and reversing a trend of slowing growth.

In some much-needed good news for Snap, the messaging giant said it added more users than expected during the fourth quarter of 2017. Today is its chance to show that it's at least making progress on fixing those issues. Snap is the 10th most popular stock among Baby Boomers, according to Stockpile.

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