After a rocky first year and a half as a publicly traded company, Snap (NYSE: SNAP), the parent company of Snapchat, finally started to take off at the beginning of 2019. Year to date, the company's share price is up by 160%. This return compares favorably to that of the S&P 500, which clocks in at 23% for the same period. Snap's run year to date isn't a fluke either; the company's financial results and key operating metrics have been on an upward trajectory.
During its latest reported quarter, Q3 2019, Snap's revenue increased by 50% on the back of its daily active users (DAUs) increasing both sequentially and year-over-year.
Fortunately for Snap, it doesn't look like its user growth is losing steam, and the company is even gaining new users in a surprising key demographic.
Snapchat's user growth
A new report by the research firm eMarketer spells good news for Snapchat. First, the report notes that although the platform lost a significant number of users in 2018 due to an unpopular redesign, the company is on pace to gain those users back and then some. Second -- and this might come as a surprise to some -- the number of users on the platform who are between the ages of 35 and 64 is growing by double-digit percentages. Third, Snapchat will keep on growing its user base for the foreseeable future. By the end of the year, Snapchat should have 293 million users, and the platform could add 63 million more by the end of 2023.
If these projections are accurate, we may only be in the early stages of Snap's comeback. Here's why. Snapchat growing its user base is important primarily because of the engagement these users bring to the platform, and Snap's ability to monetize this engagement. The latter is something the company is constantly improving.
During the third quarter, Snap's average revenue per user (ARPU) was $2.12, a 33% year over year increase. Users have also been spending more time on Snapchat, particularly on its Discover feature. Here are some key stats the company reported about its Discover platform in its third-quarter earnings report:
- Snapchat added 50 new channels on Discover across eight markets worldwide.
- More than 100 channels on Discover reached an audience of over 10 million viewers.
- The amount of time spent on the Discover feature by the average user increased by 40% year over year.
Further, Snap has been looking to improve the appeal of Discover by releasing original shows on the feature. These shows -- nine of which have been released so far -- follow the Story pattern that is the bread and butter of Snapchat. In its third-quarter earnings report, the company revealed that one of these shows, called Dead of Night, reached 14 million unique viewers.
Beyond Discover, Snap offers several other features. For instance, the company launched Snap Games earlier this year. During the third quarter, Snap partnered with a mobile game developer, SYBO Games, and launched a game called Subway Surfers Airtime.
That being said, we don't have any data as to how Games is performing yet. During Snap's third quarter earnings conference call, CEO of the company Evan Spiegel declined to offer numbers on how popular this feature is after being asked to do so by an analyst. Thus, only time will tell whether and to what extent Games and other features on Snapchat are driving user engagement.
What's next for Snap
Snap's future looks a lot brighter than it did just a year ago, but the company is still facing competition from rivals. These include Facebook's Instagram, which famously (and successfully) copied Snapchat's Story feature. Snap will also face competition from Quibi, a short-video-series platform that will launch next year. This platform will feature several A-list Hollywood celebrities and has already secured $100 million in ad sales.
Perhaps these headwinds will disrupt Snap's progress, but if its recent turnaround continues, Snap could become a growth stock worth serious consideration, if it isn't already.
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