Snap shares soared as high as nearly 17% in after-hours trading Thursday after reporting its highest rates of revenue and user growth in four years.
It's not surprising the company grew compared to the same time last year, when advertisers pulled back spending, but Snap's rosy projections for the upcoming quarter suggest the post-pandemic bump wasn't a quirk.
Snap told investors on Thursday it forecasts 58% to 60% year-over-year revenue growth in the third quarter. Share prices approached the record-highs that Snap saw in February following the company's announcement that it anticipates 50% revenue growth for the next several years.
Analysts had expected a big year-over-year jump this quarter as the pandemic subsided and advertisers spent more. Snap nevertheless exceeded expectations, hitting 293 million users and more than doubling revenue.
CEO Evan Spiegel said he expects growth to continue as Snap moves deeper into ecommerce with ongoing investments in features like AR shopping.
Analysts agree that Snap has plenty of room to further monetize that, along with other relatively new features like Maps and Spotlight, the TikTok-like, algorithmically-surfaced video feed that Snap launched in November. The company grew its Spotlight daily active users 49% quarter-over-quarter.
Spiegel told investors Snap is not ready to turn Spotlight into a revenue generator.
"We've done small testing with advertising in Spotlight but for now we're just really focused on the core experience," Spiegel said. "We've got a great roadmap of improvements and we just don't want the team to get distracted, frankly, with monetization at this point."
Snap pulled in $3.35 per user globally, beating Wall Street expectations. Still, that figure still lags behind competitors like Twitter (around $5) and Facebook (over $13). Analysts believe that, too, gives Snap room to grow.
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This week on the L.A. Venture podcast, hear from Mike Jones, the founder and CEO of studio and venture firm Science Inc. Jones is considered an expert on scaling and robust business strategy. He runs Science Inc. with Peter Pham, Greg Gilman and Tom Dare.
Starting in the late 90s, Jones began creating and managing his own businesses. He created UserPlane, an instant messaging service that was acquired by AOL early in his career. Following that, he was the turnaround CEO of MySpace— helping the company navigate losing its legacy status — and has invested in a number of notable brands, including GoodReads, Maker Studios Inc., HelloSociety and DogVacay.
Science is often considered an incubator. It was also the first investor in Dollar Shave Club and has also helped scale Mammoth Media, Arrive Outdoors, pray.com, Liquid Death and PlayVS. Jones has also been named one of the most influential people in Los Angeles.
Science has a venture funding studio, a blockchain fund and a late-stage SPAC. The company is best known for its venture arm, which is investing out of its $100 million Fund III.
Jones also works with these companies as an advisor. He says it's important to him that the founders he invests in are willing to learn and be highly adaptable to new strategies.
His background at MySpace, he says, gives him a unique perspective on the future of social media. He says he has respect for Snap founder Evan Spiegel, but adds he thinks social media needs to be more empathetic.
"in a world where when you and I meet up in person, we have millions of micro expressions on how we're communicating with each other," he says, "like pheromones, and all the other components that go into two people standing next to each other and actually having a conversation. We have to rebuild that digitally."
This is why he argues that founders' intent and message are so important.
"The thesis of an authentic brand is 'I make this product because I believe it's the right thing to do. And it has a purpose'," he says, beyond profit.
Mike offers his insights on investing, the 2020 ecommerce boom, the future of NFTs and his passion for cyrptocurrency.
"One thing that's 100% true is I've never seen retention correct itself. If you need to change retention substantially, you need to make substantial changes to the business." — Mike Jones
dot.LA Engagement Intern Colleen Tufts contributed to this post.
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Even though most of Snap's potential advertisers have no clue how to use Snapchat, the company forecasts multiple years of 50% revenue growth.
That was the big takeaway from Snap's first ever Investor Day on Tuesday. Following a banner year that saw the company's stock price more than quadruple, the market continues to like what it sees. Snap's shares were up 11% by market close and the company surpassed a $106 billion market cap.
Yet to keep pace with the market's optimism, analysts say Snap's challenge will be in monetizing its 265 million users who check in on the app an average of 30 times a day. And key to that is educating advertisers about how Snapchat works.
The nine-year-old public company's flagship app is a hit among young people – reaching 90% of 13-24 year-olds in the U.S. – but as its usage declines with age, so does familiarity with how it works.
"We are selling to an audience oftentimes who don't use Snapchat on a day-to-day basis," said chief business officer Jeremi Gorman in a question and answer session at the tail end of the three-hour virtual event.
It's helpful that over the past few years Snap has focused on "tightening up the product," said KeyBanc analyst Justin Patterson. That effort has included adding several new features and reorganizing the user experience.
On Tuesday, chief executive Evan Spiegel said the company's future innovation will now transition into growing around the five "core building blocks" of its Camera, Chat, Stories, Maps and Spotlight features.
Last summer, Snap added a toolbar on Snapchat to help users navigate across these five features. Numerous executives emphasized Tuesday that these features are at various stages of maturity, and therefore represent different opportunities for the company's growth.
Explaining Snap's rosy revenue projections, Chief Finance Officer Derek Andersen said the biggest near- and medium-term opportunities are in the Camera (he called AR lenses a "multibillion dollar opportunity") and Stories (the widely copycatted chronological images and videos that Snap pioneered, and which Andersen said includes Snapchat's curated content feature, Discover).
In the longer term, Andersen said Maps are another "multibillion dollar opportunity" to connect local businesses to users. Spotlight is also in its early stages, as the TikTok-like feature launched just a few months ago.
Andersen added that Snap's relatively low average revenue per user compared to competitors like Twitter and Facebook offers reason for optimism.
Furthering the case, Gorman noted that although Snap reaches nearly half of all U.S. smartphone users, it captures less than 2% of the $142 billion U.S. digital advertising market – which, she said, emarketer has forecasted to grow at 14% per year.
Recognizing that educating advertisers on how Snapchat works is its biggest hurdle, in August the company ran its first business-facing marketing campaign. Chief Marketing Officer Kenny Mitchell said the campaign, alongside Snap's other efforts to train marketers, has resulted in more advertisers completing Snap's business-education certification over the past seven months than in the prior three years combined.
Still, whether Snap wants to lure more companies to spend money on the six-second unskippable ads that appear in between Stories, set up a listing on Maps or showcase a brand or highlight a sale with an AR lens campaign, the self-styled camera company out of Santa Monica remains in translation mode.
Toward the end of the event, Gorman walked analysts through a hypothetical example of how her team tries to help advertisers understand how the young people that they're trying to reach use Snapchat.
"Open your phone," she said. "What apps do you see that you use the most?"
Most of the time, she said, the response is some combination of messaging, camera and map.
"For this generation, for 13 to 34," her demo continued, "those things are all together in Snapchat."
Moving forward, there "is a major [monetization] opportunity for [Snap]," said Piper Sandler analyst Tom Champion. "It just remains to be seen whether or not they can do it."
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