Snap Beats Profit Estimates on Advertising Platform Strength

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Snap Inc. (SNAP) exceeded Wall Street’s quarterly profit expectations on Tuesday, benefiting from significant improvements to its advertising platform. This growth helped boost its shares by 6% in after-hours trading. Amid growing uncertainty about a potential ban of TikTok in the U.S., analysts believe Snap could capitalize on the situation.

CEO Evan Spiegel stated that the uncertainty surrounding TikTok has been beneficial to Snap, as advertisers are focused on diversifying their ad spend and contingency planning. Snap is also considering increasing the price of its Snapchat+ subscription service to further raise its average revenue per user. The company reported a significant jump in Snapchat+ subscribers, which doubled to 14 million in the fourth quarter.

Snap has been heavily investing in artificial intelligence and machine learning tools to create more personalized ads. A notable shift in its strategy has been an emphasis on direct response ads, designed to prompt specific actions like app downloads or website visits, particularly as brand awareness ads show signs of weakness. These efforts have allowed Snap to tap into small- and mid-sized businesses, which have become the largest contributors to the company’s advertising revenue growth in 2024.

The company is also planning to expand its advertising formats, such as Sponsored Snaps (video ads in users’ inboxes) and Promoted Places (business location highlights on Snap Map), into additional markets.

“Snap’s diligent work on its ad platform and diversifying its revenue streams through subscriptions have paid off,” said Jasmine Enberg, principal analyst at eMarketer.

Snap reported adjusted earnings per share of 16 cents for the fourth quarter, surpassing analysts’ average estimate of 14 cents. The company also saw a 9% increase in daily active users, reaching 453 million, slightly surpassing the expected 450.8 million. For the first quarter of 2024, Snap forecasts revenue between $1.33 billion and $1.36 billion, with adjusted EBITDA expected to range between $40 million and $75 million, which is slightly below analyst expectations of $78.1 million.

Quarterly revenue rose 14% to $1.56 billion, marginally surpassing the average forecast of $1.55 billion.

 

Coinbase Urges US Regulators to Clear Path for Banks to Offer Crypto Services

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On Tuesday, Coinbase Global renewed its call for U.S. banking regulators to clarify or revise their stance on banks providing cryptocurrency services and forming partnerships with digital asset companies. The move comes amid a broader push by the crypto industry to lobby lawmakers for a regulatory framework that could foster the sector’s growth. Most traditional U.S. banks have been hesitant to engage with digital asset firms, citing the lack of regulatory clarity.

Coinbase’s Chief Policy Officer, Faryar Shirzad, expressed frustration on social media, claiming that U.S. bank regulators have “unilaterally and undemocratically” prohibited banks from offering crypto services. This marks the latest in a series of efforts by the crypto industry to press for more favorable regulations.

The crypto sector has been actively working to influence political outcomes, having donated millions of dollars to support Donald Trump’s bid for the White House, hoping to prioritize cryptocurrency regulation under a potential new administration. Shirzad also reached out directly to top U.S. banking regulators, including the Office of the Comptroller of the Currency (OCC), the Federal Reserve, and the Federal Deposit Insurance Corporation (FDIC), urging them to allow banks to engage with crypto businesses. However, the OCC declined to comment, and the Fed and FDIC did not immediately respond to inquiries.

The crypto industry has often accused U.S. regulators of deliberately hindering their access to the traditional financial system. While regulators have denied these accusations, the recent move by the U.S. Securities and Exchange Commission (SEC) to create a task force focused on developing a regulatory framework for crypto assets signals a potential shift in policy.

Former PayPal executive David Sacks has also been appointed as Trump’s “White House A.I. & Crypto Czar,” further suggesting that digital assets may receive more attention from the government if Trump is reelected. Despite these political shifts, U.S. banks have remained cautious about adopting cryptocurrencies in their services.

 

PayPal’s Profit Growth Focus Slows Unbranded Business, Shares Drop 10%

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PayPal’s shares fell nearly 10% on Tuesday after the digital payments giant reported a sharp slowdown in its unbranded card processing business growth and a shrinkage in its operating margin during the fourth quarter. The company’s unbranded payments, which involve transactions for other firms rather than PayPal itself, had experienced strong growth in recent years but traditionally operated on low margins due to intense competition.

Under CEO Alex Chriss, PayPal has focused on “profitable growth” and revamped its pricing strategy, particularly for its Braintree product (the non-PayPal branded checkout service), which has led to some customer losses. In the fourth quarter, total payment volume growth for unbranded payment processing slowed to just 2%, a significant drop from 29% the previous year. Despite this, the focus on profitable growth has improved overall profitability.

Branded product growth, which includes services like Venmo where consumers and merchants interact within PayPal’s platform, also fell short of analysts’ expectations, increasing by only 6%, below the expected 7%. This outcome overshadowed an optimistic forecast for 2025 profit growth that surpassed Wall Street estimates.

The results come amid increasing competition in the digital payments space, with technology giants like Apple and Google, along with traditional card networks like Visa and Mastercard, expanding into PayPal’s core market. This competition has intensified as more consumers turn to mobile payment options such as Google Pay and Apple Pay.

Despite a contraction in adjusted operating margins by 34 basis points to 18% in Q4, PayPal’s shift towards high-margin products helped the company close the year with an expansion in margins, rising 116 basis points to 18.4%.

CEO Chriss, who took over in late 2023, emphasized the company’s commitment to focusing on high-margin products and optimizing its offerings for better profitability. PayPal’s new initiatives include a “one-click” checkout feature called Fastlane and forming new partnerships to strengthen its market position.

Looking ahead, PayPal expects its adjusted profit for the full year to grow between $4.95 and $5.10 per share, surpassing Wall Street’s estimated $4.90 per share. The company reported an adjusted profit of $1.19 for the fourth quarter, exceeding estimates of $1.12. Its revenue for Q4 rose by 4% to $8.4 billion, and total payment volume increased by 7%.