Snap Stock Soars Over 30% After Huge Q3 Revenue Beat, Snapchat Gain of 11 Million Daily Users

Snap - Evan Spiegel
Andreas Gebert / Picture Alliance for DLD / Hubert Burda Media/picture-alliance/dpa/AP Images

UPDATED: Snap posted the highest daily active user growth rate for Snapchat since 2017 and significantly topped Wall Street revenue expectations for the third quarter of 2020. On the stellar results, investors rallied behind the stock — which rocketed up more than 30% in morning trading Wednesday to new all-time highs.

Shortly after the market opened, Snap shares were up 22.7%. By 11 a.m. ET, the stock was up 33.8%, to $38.06 per share (up more than 50% from its closing price after its March 2017 IPO).

Media Earnings

The social messaging and media app company on Tuesday posted all-time quarterly record revenue of $679 million, up a whopping 52% year-over-year, and blowing past analyst consensus estimate of $549.99 million.

Snapchat daily active users increased by 18% year over year, with the addition of 11 million users in Q3. An average of 249 million people used Snapchat daily in the period, the company said.

Snap remains unprofitable, but it narrowed its net loss for Q3 to about $200 million (down from a net loss of $227.4 million in the year-earlier period). The company boasted that it turned in its second quarter of positive adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), which came in at $56 million (versus -$42.4 million in Q3 2019).

“Our focus on delivering value for our community and advertising partners is yielding positive results during this challenging time,” Snap CEO Evan Spiegel said in announcing earnings Tuesday. “We’re excited about the growth of our business in Q3 as we continue to make long-term investments in our future.”

Spiegel said a key growth driver for Snap across all of markets has been “product innovation and infrastructure improvements.” He said that after the rebuild of the Snapchat Android application last year, the company is rolling out a “newly streamlined messaging infrastructure that we expect will make messaging faster and more efficient, which will help drive increased engagement, especially as we expand our community across different countries and devices.”

Summing up Snap’s blockbuster top-line results, MoffettNathanson principal analyst Michael Nathanson wrote: “Stepping back, we are witnessing an acceleration in the decline of linear general entertainment content consumption, a resurgence in brand spending as advertisers return to the market, ad boycotts by leading brands at Facebook, significant challenges at peer TikTok, a return of highly engaging digital sports content, and an improvement in the types of advertising inventory that Snap is creating.”

Snap’s Q3 numbers “far exceeded even the most bullish of expectations,” Pivotal Research Group analyst Michael Levine wrote in a note. “The business is firing on all cylinders, essentially back to Q1-before-COVID levels, and we very much like the momentum trajectory into 2021 and beyond.”

The company’s brand advertising business has continued to strongly rebound, and is likely tracking well into October, according to Levine. He added, “We think we are in the top of the first inning regarding AR/VR and maps revenue opportunities.”

For Q4, Snap expects Snapchat to reach 257 million DAUs, up 8 million sequentially. • Revenues – Although they did not formally guide, they indicated likely 47-50% y/y growth in the 4th We think this is conservative relative to Aug/Sep run rates likely in the 60% + range. We would note that given current momentum in the business, and easy H121 comps, that the momentum is likely to remain high, and LOVE the catalyst of Analyst day on February 23, 2021.

On the content front, Snap reported that total daily time spent by Snapchat users watching its original short-form shows increased by over 50% year-over-year in Q3 2020. Snap Original “VS the World” docuseries franchise from Complex Networks launched its second season, which features MMA superstar Conor McGregor, and has already reached over 14 million viewers since its Sept. 12 premiere.

In addition, the company said, over 50 million Snapchatters watch content supplied by TV partners on Snapchat each month on average. Sports in particular saw a lift in Q3: ESPN’s “SportsCenter on Snapchat” viewership increased by 80% from July to September 2020, and the NBA highlights channel saw over 20% more engagement so far this season than last year, according to Snap.

In Q3, because of the growth in Snapchat Shows and improved monetization, the company paid media partners 85% more than it did in Q3 of last year.