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Snap Inc. stock surges nearly 40 percent after reporting strong earnings, user growth

Tracey Lien, Los Angeles Times on

Published in Business News

SAN FRANCISCO -- Investors rewarded Snap Inc. handsomely on Wednesday as the social media company's shares soared 39 percent following the company's unexpected positive earnings report.

The Venice, Calif.-based company surprised analysts on Tuesday when it reported revenue of $286 million in its fourth quarter, a 72 percent increase from a year earlier, due to strong user and advertising growth. The revenue number blew away analysts' estimate of $253 million.

The earnings report was released after the market closed, and the stock price hit $19.52 in morning trading on Wall Street, the highest it has been since last June. The company's stock price peaked at $27.09 on the day it went public last March.

Shares were down to $19.08 in early afternoon trading in New York, still well above the $14.05 price they closed at on Tuesday.

Snap's flagship app, Snapchat, added 8.9 million daily active users in the quarter ended Dec. 31. That's the largest jump since the third quarter of 2016. The company now has 187 million daily active users, surpassing analysts' estimates of 184 million.

Snap posted a net loss of $350 million, or 28 cents a share, in the fourth quarter, which was well under analysts' estimates of $410 million, or 33 cents a share.

Barclay analysts expect the company's stock to continue climbing "as the narrative changes from 2017's '1/8Facebook3/8 is going to crush SNAP' to 2018's 'users and revenue accelerate and the platform is under-monetized."

 

Snap's share-price upswing comes at a time when technology stocks are getting pummeled amid stock market volatility.

In shaky times, technology stocks often take the first -- and hardest -- beating, according to Lawrence Harris, a finance professor at USC's Marshall School of Business. That's because the industry's valuations largely rest of what the companies might be able to accomplish in the future, so investor optimism or pessimism can lead to significant swings in stock price.

Snap's co-founder and chief executive, Evan Spiegel, credited a redesign of Snapchat, an improved experience for Android users and a switch to programmatic ad buying -- an automated auction for advertisers -- for turning around the company's trajectory. Programmatic buying lowers ad rates because of its efficiency, but Snap was able to offset that by adding more advertisers.

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