Snap shares jumped for a second straight day on Wednesday as investors welcomed quarterly results — including a big increase in daily active users — that indicated its turnaround effort is picking up steam.
The parent of the Snapchat app reported a smaller-than-expected loss for the second quarter on Tuesday while easily beating estimates for user growth and revenue. Global daily active users (DAUs) rose to 203 million versus the consensus 192.4 million forecast.
Snap has now posted improved results for three straight quarters, with DAUs growing for the second quarter in a row. “The growth in our community, engagement, and revenue is the result of several transitions we completed over the past 18 months,” CEO Evan Spiegel said in a news release.
After an 11% jump in the extended session Tuesday, Snap shares rose 16.6% to $17.30 on Wednesday. The stock has soared more than 180% since hitting a low of $4.99 in December.
“At this point, we must acknowledge the turnaround in underlying operating trends,” UBS analyst Eric Sheridan said in a client note, predicting that DAUs will reach more than 250 million in fiscal 2022, with Snap turning a profit by 2021.
For the second quarter, Snap lost 6 cents per share as revenue increased 48% to $388 million. Analysts had forecast a loss of 10 cents per share on revenue of $359.7 million. Average revenue per user of $1.91 topped estimates of $1.84.
As MarketWatch reports, Snap was “left for dead by many analysts and investors following a bungled Snapchat redesign and executive exodus last year.” But the increases in revenue and ARPU in the previous two quarters, aided by new content features such as Snap Games and a redesigned Android app, had some analysts buying into the turnaround scenario.
The company also reported a gross margin of 46%, a big increase from the 30% gross margin of a year ago.
Needham analyst Laura Martin, however, said Snap still isn’t in a strong financial position and that despite user growth, is still struggling to expand its demographic beyond the 13- to 34-year-old age group.