Snap shares surge 35 per cent after app redesign sparks user growth

Snap stock soars on first ever better-than-expected earnings

Snap made $285.7 million in revenue in the fourth quarter of 2017, beating analyst estimates of $253 million. Snap had a negative net margin of 463.16% and a negative return on equity of 107.36%. However, the company, based in Venice, California, said customers were now remaining longer on its Android version, after bugs in the software were fixed, and advertisers have taken to an advertising system that is auction based that makes it less expensive and easier to purchase ads.

The main reason given by the company for the stellar revenue numbers was the fact that daily active users have risen dramatically since the previous quarter.

According to TechCrunch, Snapchat managed to eclipse Facebook's daily active user (DAU) growth rate in the final quarter of 2017.

During the holidays, Snap saw increased spending from advertisers - with average revenue per user reaching $1.53.

The company's Q4 revenue jumped 72 percent year-over-year, while Snap's full year revenue was up at $824.9 million, increasing 104 percent year-over-year.

Snap Inc surprised Wall Street on Tuesday with a rebound in user growth for its Snapchat messaging app, showing resilience amid competition with Facebook Inc's Instagram and sending shares up almost 30 per cent.

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These financial and growth achievements come after months of a declining stock, news of top talent leaving the company, and concern of older users fleeing to Facebook's Instagram Stories. Analysts, though, said that Snapchat appeared willing to look inward and try to fix problems rather than be distracted by Instagram.

Snapchat divides users into three categories -"North America", "Europe", and "Rest of World". Because brands are now primarily buying Snap Ads in an auction environment, they can bid on that inventory at lower prices than Snap's direct sales team might set. Analysts had been expecting a loss of around $409 million, on about $255 million in revenue. Clients bought 90% of the company's inventory via this new tool during the latest quarter.

Shares traded at $17.73 after the bell, up 26 per cent after trading even higher earlier. That would also put Snap's yearly sales at $793 million, nearly double the $404 million it brought in in 2016.

Piper Jaffray analyst Sam Kemp said that the Q4 Snap earnings release shows that the company is indeed making progress, although he added that much of the beat was the result of dramatically lowered expectations. The company booked a net loss of $350 million for the quarter.

This quarter was certainly a turnaround for Snap and, while it is now operating at a loss, there is much evidence to prove that its business strategy is paying off.

Excluding certain items, the Los Angeles-based company reported a loss of 13 cents a share, compared to the 16-cent loss analysts predicted. Average revenue per user was $1.53 in the fourth quarter, a 46% increase year over year, demonstrating that its strategy to boost revenue with the new structure is paying off.

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