In brief: Snapchat experienced solid growth for the third quarter of 2019, albeit more modest than the previous three months. Revenue is up 50% year-over-year, and while that is good news for a company struggling on its way towards profitability, investors are worried that it may not be able to continue growing for much longer by only relying on ephemeral messaging.
Snap's Q3/19 financial report is in, and it looks like the Android app relaunch has brought in a significant number of new users, contributing to an almost 50 percent increase in revenue when compared to the same period of last year. However, the weak guidance given to investors for the next quarter saw shares drop as much as 11 percent following the announcement.
It's no secret that Snap has yet to become profitable, but now the company has 210 million daily active users, which is 7 million more than it had three months ago, and a 13 percent year-over-year increase. The reported revenue of $446 million managed to beat sales estimates from Bloomberg and Wall Street analysts, and the company reduced its quarterly losses to just over $227 million, compared to $325 million in the same quarter of last year.
While the general outlook looks positive, with users spending 40 percent more time on content from Snapchat's Discover feature, the company doesn't expect its growth will accelerate through the next quarter. Furthermore, most of the growth came from markets outside of Europe and North America, where the average revenue of just over $1 per user doesn't easily offset the cost of acquiring them.
CEO Evan Spiegel noted that his company is a "high-growth business, with strong operating leverage, a clear path to profitability, a distinct vision for the future and the ability to invest over the long term." That said, investors aren't convinced Snap can grow quickly enough for its high ambitions. Interestingly, Spiegel sees TikTok as more of a partner serving a different need for social media consumers, while the latter is heavily promoting itself using paid ads on Snapchat.
However, it's possible that TikTok's rapid growth could mean people will spend less time on Snapchat as a result.
Snap's big bet on AR glasses is arguably a long term play, yet it's not clear how the company intends to survive in the meantime. The recently announced Spectacles 3 are significantly more expensive than previous versions, and none of those products managed to hit the mainstream.
In any case, Snap added 13 million users in the second quarter of this year, which means its growth story isn't progressing as well as it could. On a more positive note, Instagram hasn't been able to replicate the success of Snapchat's Discover feature with IGTV, so there's still hope for as long as Snap can attract more users.