Snap Stock climbs after profits. Here’s why.

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Amid Covid-19 fears over soft ad market, Snapchat parent

Break

said advertisers have started to recoup spending on the platform and in some cases increase spending.

The result: Snap (ticker: SNAP) announced its second adjusted profit in the company’s life as a public company, beating Wall Street sales expectations by more than $ 100 million.

Investors responded in the after-hours session, sending the Snap stock to jump 24% in pre-market trading. If stocks close Wednesday’s session at this level, it will shatter stock records set in October.In prepared remarks, Jeremi Gorman, Chief Commercial Officer of Snap, attributed the 52% increase in quarter-over-quarter revenue to the company’s investments in its advertising platform, products and marketing. team. She said the company is seeing the beginnings of a takeover from advertisers of the company’s brand and the direct response portion of its advertising business continues to strengthen.

“We continue to invest heavily in ranking, optimization and measurement in order to deliver a measurable ROI to our advertising partners,” said Gorman. “It is our investments in our self-service advertising platform and our ability to serve our customers during a difficult time that allowed us to welcome a record number of advertisers this quarter.”

Snap reported a third-quarter net loss of $ 199.9 million, or 14 cents per share, compared with a net loss of $ 227.4 million, or 16 cents per share, during the same period of the last year. Adjusted for stock compensation, among other things, profits stood at one penny per share, down from a loss of four cents per share a year ago. Revenues increased from $ 446.2 million to $ 678.7 million.

In the third quarter, Snap paid out $ 192 million in stock-based compensation to employees, which represents 28% of the company’s revenue.

Selling analysts expected Snap to report an adjusted loss of five cents a share on sales of $ 559.2 million. Wall Street expects a GAAP net loss of 18 cents per share.

Snap’s comment on online advertising signals a strong signal for what investors are likely to see when bigger rivals such as

Alphabet

(GOOGL) et

Facebook

(FB) announces its earnings in the coming weeks. They were up 1% and 2.7% respectively in after-hours trading. Other social media stocks also advanced in pre-market trading, with

Twitter

(TWTR) up 5.4% and

Pinterest

(PINS) wins 7%.

JMP Securities analyst Ron Josey said Barron’s In a phone interview, Snap’s third quarter earnings are evidence of a continued large shift in online advertising dollars. “I think all the advertising dollars that were historically allocated to television, or allocated to print, or out, I think those are accelerating online,” Josey said.

Snap also exceeded expectations for the number of members who use the Snapchat platform on a daily basis, with that number increasing by 18% to 249 million from a year ago. Snap’s revenue per user was $ 2.73, with its North American members being the most valuable, at $ 5.49 per user. Analysts had predicted that Snap would bring in 244.57 million daily active users and an average revenue per user of $ 2.30.

Josey said he pays very close attention to these user engagement, which continued to increase in the third quarter, despite competition from TikTok, Instagram and Facebook.

Snap CFO Derek Anderson said if favorable conditions continue, the company expects revenue growth of 47% to 50%, and around 257 million daily active users in the fourth quarter. . For Josey, beyond the continued growth of advertising, the company’s e-commerce initiatives are probably the most interesting for growth in 2021, as e-commerce becomes more social.

Of the analysts who cover Snap, 26 rate the stock as a buy, 11 have a hold, and three rate the stock as a sell. The average target price is $ 27.88, which implies a 3% drop.

Shares closed Tuesday down 0.7%, at $ 28.45. The Snap stock hit several record highs in October, closing above $ 27.09, which it hit shortly after its IPO in 2017, in addition to five trading sessions. Snap shares have nearly doubled this year, while

S&P 500

the index increased by 16%.

Write to Max A. Cherney at [email protected]

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