Snap Posts Its First Earnings Beat, Will Its 2018 Be Better Than 2017?

Snap Inc. (NYSE:SNAP) posted its first earnings beat as a publicly listed company, delivering strong fourth-quarter revenue and user growth. Although the company’s Q4 losses doubled over the last year, sales rose by 72% to $286 million from a year earlier. Snap’s stock rose by over 20% in after-hours trading on Tuesday, as investors likely grew more optimistic about the company’s ability to monetize its platform via programmatic advertising, while continuing to adding new users. Below we take a look at some of the key takeaways from Snap’s results.

We have also created an interactive dashboard, outlining the company’s performance over 2017, with our projections for the company in 2018. You can modify inputs (blue dots) if you have a different view to see how updated inputs impact the expected EPS for the quarter.

Snap Ad Prices Continue To Fall, But Impressions Are Rising Fast

Snap’s quarterly ARPU grew to levels of $1.53 this quarter, marking an increase of about 46% year-over-year. While this is partly driven by higher spending by marketers over the holiday season, it’s also likely that Snap is making progress on monetizing its platform via programmatic advertising. Although Snap’s ad prices continued to plummet (price per ad impression declined by 25% over Q4) with the company shifting from a direct sales model to an automated auction-based model, it appears to be seeing volumes ramp up, allowing revenues to expand. The company said that it increased its advertising impressions by more than four times year-over-year.  Snap also noted that over 90% of Snap Ads were bought programmatically during Q4, indicating that its transition from direct sales is largely complete.

User Growth Soared Over Q4, Likely Driven By Android Traction

Snap added a total of 9 million daily active users over Q4, marking its strongest quarterly performance this year, with additions from outside North America coming in at close to 6 million. Snap’s user growth appears to be driven partly by users of its Android app, which it has been increasingly emphasizing. The company says that the retention rate of new Android users grew by nearly 20% compared to last year, meaning that Android users who tried out Snapchat were generally more likely to become DAUs. The company also said that Q4 saw significantly more new Android users as a percentage of net additional users.

Impact of Redesign Will Be A Key Factor To Watch Over Q1

Snap also launched a completely redesigned version of its app in Q4, which essentially separates the social content of its app from the media. Although the company noted that it was at a very early stage of the rollout, with the app expected to become available to the entire community only in Q1, it noted that it saw improvement in both ad performance as well as engagement on publisher content. Snap also says that the redesign has made its application simpler and easier to use, particularly for older users, and it’s possible that this could have an impact on user growth going forward. This will be a key factor to watch over the first quarter.

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