Snapchat User Growth Accelerates in Q4, Total Revenue Up 44% But Misses Expectations

Evan Spiegel Snapchat IPO
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Snap said Snapchat gained a net 8 million new daily active users in the fourth quarter of 2019 — its biggest sequential growth in two years — but revenue was lighter than Wall Street expected, sending the stock down in after-hours trading.

The social media and messaging app stood at 218 million daily active users, or DAUs, as of the end of last year. That’s up 17% year over year. It was Snapchat’s biggest quarterly growth since the first quarter of 2018, which preceded a redesign many users hated and stalled momentum.

The company posted revenue of $561 million, up 44% year-over-year, and adjusted earnings per share of 3 cents. Wall Street analysts’ consensus estimates were for revenue of about $563 million and adjusted EPS of 1 cent. Shares of Snap fell more than 12% in post-market trading on the revenue miss.

In 2019, Snap added a net 31 million daily active users and “progressed towards profitability,” CEO Evan Spiegel said in announcing the results. “The strength in our core business gives us confidence in our long term growth and profitability and we’re excited to build on these results in 2020 and beyond.”

User growth last year was “largely driven by investments in our core product and improvements to our Android application,” Spiegel said, claiming that the company has cut Snapchat’s median cellular data usage in half in the past six months.

The company also said total daily time spent by Snapchat users watching video content Discover increased by 35% year-over-year in Q4 2019, while more than 50 Snapchat Shows reached a monthly audience of over 10 million viewers each.

Spiegel said Snap would continue to increase investments in originals and other premium content. “While our investments up to this point have been selective and measured, these original shows are already being watched by more than half of the U.S. Gen Z population,” the CEO said on the company’s earnings call. He called out shows including “Dead Girls Detective Agency,” now in its fourth season, and the recently launched “Vs the World” docuseries.

Revenue from Snapchat’s Commercials in video more than tripled year-over-year in Q4 2019, while sales of Story Ads doubled, according to Snap. Spiegel said he sees a “significant opportunity” to increase brand advertising on the Snapchat platform, “especially as television and desktop budgets represent three times the total mobile ad spend in the U.S.”

Snap expects to increase the number of advertisers on the app, which will help it “meaningfully close the ARPU gap relative to our peers,” chief business officer Jeremi Gorman said, referring to average revenue per user. In Q4, Snap’s ARPU was $2.58 overall and $4.42 in North America, up 23% and 31%, respectively. By comparison, Facebook’s ARPU in the period was $8.52 overall and $41.41 in the U.S. and Canada.

Snap touted that it hit its goal in Q4 of profitability on the basis of adjusted earnings before interest, taxes, depreciation and amortization, reporting $42 million in adjusted EBITDA (versus an adjusted EBITDA loss of $50 million in the year-earlier period).

That said, Snap’s net loss increased 26% in the quarter, to $240.7 million, which included a one-time $100 million charge for the settlement of class-action shareholder lawsuits filed after its March 2017 initial public offering. Snap’s preliminary settlement, reached in January 2020, totaled $187.5 million; the $100 million expense was net of amounts covered by insurance.

Snapchat grew daily active users in all geographies. In North America, DAUs grew by 7 million year over year (up 9%); Europe also increased by 7 million (up 12%) and in the rest of the world, DAU grew by 17 million (up 36%). Also during Q4, Snap launched 78 new international Discover channels up from 53 the prior quarter.

The company’s financial guidance for Q1 assumes DAU of 224 million-225 million, which would be around 18% year-to-year growth. Snap projects revenue of $450 million-$470 million for Q1 and adjusted EBITDA of between negative $90 million and negative $70 million, reflecting “our plans to invest in the future of our business,” CFO Derek Andersen told analysts.