Snapchat looks like a real business after all

We don’t understand it, but perhaps we’re not supposed to. We do understand numbers though, and the Snap financials are looking stronger each year.

For those who getting a bit ‘longer in the tooth’, Snapchat might look like nothing more than a reel of confusing inside jokes which the younger generations are keeping well beyond arms’ length. It seems like nothing more than a messaging app for the paranoia filled narcissists, but few investors will care about perceptions if the numbers keep heading in this direction.

“We’re proud of the results that our team delivered this quarter,” said CEO Evan Spiegel. “We added 13 million daily actives users, our highest net adds since the second quarter of 2016, bringing our daily active users to 203 million.

“The average number of Snaps created every day grew to more than 3.5 billion this quarter, and average time spent per user was over 30 minutes per day.

“Our revenue growth rate accelerated both quarter-over-quarter and year-over-year to 48%, yielding $388 million in total revenue for the quarter. This growth in our community, engagement and revenue is the result of several transitions we completed over the past 18 months.”

Total revenues reached $388 million for the three months ending June 30, growth of 48% compared to same period in 2018, while net gain on subscribers exceeded numbers expected by analysts. Snap might not be in profit just yet, operating loss totalled $304 million, but the numbers are all heading in the right direction. Snap does seem to be following the traditional route of Silicon Valley in this sense, and profit might not be that far away anymore.

Those who invest in Silicon Valley certainly have to be brave. The latest generation of businesses to emerge insist on significant backers to pump in huge amounts of capital with the vague hope of profits on the very-distant horizon. The early years are focusing on growth, doubling-down on product innovation to cut through the noise in a very competitive segment. Profits are an afterthought, but the likes of Google, Facebook, Amazon, Netflix and Twitter prove an oasis can emerge after years of traipsing through the baron deserts.

In fairness to the Snap team, its innovations are often stolen by other platforms, somewhat of a complement in today’s world. The product itself does not much resemble the app which hit the market in 2011, and while there might have been complaints about updates forced on the user last year, there do seem to be rewards.

Daily Active Users (DAUs) over the last three months increased to 203 million, up from 190 million in the previous quarter and 188 million in the same period of 2018. The average number of Snaps created every day also grew, this time totalling more than 3.5 billion on average over the three months.

Perhaps most importantly however is retention is increasing. There have been fears in the past that Snapchat would be nothing more than a passing fancy, though the team saw more than a 10% increase in the retention rate of people who open Snapchat for the first time.

The appeal of this app to the younger generations is unquestionable, Spiegel claims 75% of the 13 to 34 year-old population in the US is active on Snapchat, but questions remain over the commercial viability of the platform but also retention rates for older generations.

On the advertising side, this is an area which has certainly improved. Like Twitter last year, Snap has made it easier for advertisers to create content for the platform but also manage campaigns. This might sound simple, but for developers who have traditionally focused on user engagement this could have been an afterthought. It appears there is becoming a much healthier mix of user engagement and advertising appeal on the platform to ensure revenues can continue to grow.

The team is also making encouraging progress on augmented reality, a technology which promises a lot from both engagement and revenue perspectives. Few have been able to make this technology work to its full potential, but the Snap team have proven numerous times over the last few years they are leaders when it comes to innovation.

The Snapchat app might be an enigma when it comes to the older generations, they might not understand why it is appealing, but who are they to second-guess why. Numbers speak for themselves, and while Snap is a long-way from profit, the trends are certainly heading in the right direction.