By Sheila Dang
(Reuters) – Snap Inc on Tuesday beat Wall Street estimates for quarterly revenue and user growth for its Snapchat app, as more people seek entertainment while they stay at home during the global coronavirus pandemic.
Snapchat, known for its disappearing messages, said it saw a jump in usage in the last week of March compared with the end of January, as people increasingly used the app to communicate with friends and family. Usage also increased for Snapchat’s original content and in-app games.
Shares of Snap jumped as much as 20% to $14.93 in trading after the bell.
Daily active users (DAU) on Snapchat rose 20% to 229 million in the first quarter ended March 31, compared with a year earlier. The figure stood at 218 million in the fourth quarter.
DAU, a widely watched metric by investors and advertisers, beat analysts’ average estimate of 224.68 million, according to Refinitiv data.
Revenue, which Snap earns mainly by selling advertising on the app, increased 44% from a year earlier to $462.47 million. The company said higher revenue in the first two months of the quarter offset lower growth in March, when advertisers began to tighten marketing budgets as non-essential stores closed amid the pandemic.
Analysts had expected revenue of $428.80 million in the first quarter.
So-called “direct response” advertisers, or those seeking to increase sales through their ads rather than name recognition, were a bright spot, said Evan Spiegel, chief executive of Snap, during a conference call with analysts. Direct response advertising is now more than half of Snap’s total revenue.
Small and medium-sized businesses have been hard-hit during the pandemic, but represent a smaller portion of Snap’s direct response ad business, which has helped protect revenue, said Jeremi Gorman, Snap’s chief business officer, on the earnings call.
The company said it would shift resources on its sales team to serve advertisers in industries like gaming, home entertainment and consumer packaged goods, which are expected to see higher demand from people stuck at home.
For example, Snap could help movie studios pivot to digital or streaming releases, Spiegel said.
Snap said it would not provide its usual guidance for the next quarter, given the uncertainty caused by the coronavirus.
“These high growth rates in the beginning of the quarter reflect our investments in our audience, ad products, and optimization, and give us confidence in our ability to grow revenue over the long term,” Spiegel said.
Research firm eMarketer downgraded growth estimates for the global advertising industry this year to 7% from 7.4% — a difference of $20 billion — due to the coronavirus, in a report last month.
Average revenue per user in the first quarter was $2.02, up from $1.68 in the prior year.
Snap’s net loss declined slightly to $305.9 million, or 21 cents per share, from $310.4 million, or 23 cents per share, a year earlier.
(Reporting by Sheila Dang; Editing by Lisa Shumaker)