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.
