Snap is up 10% as it gets a big boost from AI and paid users
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Snap is up 10% as it gets a big boost from AI and paid users

  • Snap’s stock rose 10% after its third-quarter earnings beat Wall Street expectations.
  • Snap’s revenue grew 15% to $1.37 billion, beating analysts’ estimates of $1.36 billion.
  • Snap’s revenue growth was attributed to AI features and growth in Snapchat+ users.

Snap rose 10% in late trade after reporting third-quarter earnings that beat analysts’ expectations, following the launch of a wide range of artificial intelligence and growth in paid users.

Snap, which is most popular for its photo messaging service, saw quarterly revenue increase 15% year over year to $1.37 billion. The number slightly beat analysts’ estimates of $1.36 billion.

Snap CEO Evan Spiegel said efforts to drive engagementsuch as AI-generated collage features and the use of machine learning for better personalization, are showing early signs of paying off.

Spiegel said Snap has also introduced AI tools for creators, which it has been presses on board on the platform recently.

“During the third quarter, we began testing a new AI video generation tool that enables creators to generate engaging videos with a simple text or image prompt,” Spiegel said on Tuesday’s earnings call. “Our efforts to support creators have contributed to an approximately 50% year-over-year increase in the number of creators posting content in the third quarter.”

The social media platform grew its daily active users by 11 million people in the third quarter, up 9% year-over-year. However, Snap projected that the current quarter will only see the number of users grow by 8 million to 451 million.

Daily active users are a measure of how much people want to engage with a platform. It’s an important metric for social media companies because more users typically translate to more advertising money.

Paid subscribers and AI boost Snap

The CEO also attributed the revenue increase to paid subscriptions.

Snapchat+, a $3.99-a-month feature that launched in 2022 amid a decline in ad revenue, reached 12 million subscribers in the third quarter. Subscribers more than doubled year-over-year, contributing approximately $123 million in quarterly revenue.

The social media platform has also overhauled its advertising business in recent years. It shifted from brand awareness ads to more expensive direct response ads that have a call to action, encouraging users to buy a product or visit a website.

Despite factors that have positively impacted Snap, the company has consistently reported losses, including a $153 million loss in the third quarter. It reported a loss of $368 million in the third quarter of 2023.

Snap’s 443 million user base is small in comparison Meta’s 3.3 billion usersand TikTok’s more than 1 billion users, both of which compete directly with for ad revenue.

The performance gap between Snap and Meta and Google continues to widen, further accelerating Snap’s market share losses and underperforming revenue growth, Jefferies analysts led by James Heaney wrote in a pre-earnings note last week.

The company has missed analyst expectations twice in the past four quarters. Its stock has fallen over 35% so far this year.