Snap’s stock surged 10% in after-hours trading following the announcement of its third-quarter earnings, which surpassed analyst expectations. The company’s revenue increased 15% year-over-year to reach $1.37 billion, slightly exceeding the forecast of $1.36 billion.
CEO Evan Spiegel attributed this growth to the successful introduction of various artificial intelligence features aimed at enhancing user engagement. Innovations such as AI-generated collage tools and machine learning for improved personalization are beginning to yield positive results.
During the earnings call, Spiegel highlighted the launch of an AI video generation tool that allows creators to produce engaging videos using simple text or image prompts. He noted that Snap’s initiatives to attract creators have led to a roughly 50% year-over-year increase in the number of users posting content in the third quarter.
Strong Third Quarter
Snap reported an addition of 11 million daily active users in Q3, reflecting a 9% increase compared to the previous year. However, the company anticipates a more modest growth of 8 million users in the current quarter, bringing the total to 451 million. Daily active users are a critical metric for social media platforms, as a larger user base generally translates to increased advertising revenue.
In addition to user growth, Spiegel credited revenue increases to paid subscriptions. The Snapchat+ service, priced at $3.99 per month and launched in 2022 during a downturn in ad revenue, now boasts 12 million subscribers—more than doubling from the previous year and contributing approximately $123 million to quarterly revenue.
Snap has also revamped its advertising strategy, shifting focus from brand awareness ads to more lucrative direct response ads that encourage users to take action, such as making purchases or visiting websites.
Despite these positive developments, Snap continues to face financial challenges, reporting a $153 million loss in Q3 and a total loss of $368 million for the quarter. With a user base of 443 million, Snap lags significantly behind competitors like Meta, which has 3.3 billion users, and TikTok, with over 1 billion users.
Analysts at Jefferies, led by James Heaney, noted that the performance gap between Snap and larger rivals like Meta and Google is widening, resulting in further declines in market share and revenue growth. Snap has missed analyst expectations twice in the past four quarters, and its stock has dropped over 35% year-to-date.