Snap Inc.'s (SNAP, Financial) stock price skyrocketed nearly 30% between the closing bell on Feb. 6 and 10 a.m. Eastern on Feb. 7. The company posted its first earnings beat, which was driven by user growth.
The company said its number of daily active users for the fourth quarter of 2017 increased 5.05% quarter over quarter to 187 million users. Snap posted a 2.9% increase in daily active users in the previous quarter.
Analysts had predicted the daily user count would be 184.2 million.
Snap's revenue rose 72% year over year to $285.7 million. The company posted an adjusted earnings loss of 13 cents per share. Analysts had expected revenue to be $253 million with an adjusted loss of 16 cents per share.
Snap's operating expenses grew to $261 million, with $350 million in losses. The losses are down from $440 million in the prior quarter. The company's total losses for 2017 rose to $3.45 billion. The company still maintains $2 billion in cash, which is left for expenses, hiring and acquisitions.
Small business revenue doubled in the third and fourth quarters of the year as Snap moved from large, household advertisers to a platform that all advertisers can afford.
"We know that in order to truly scale our business, advertising on Snapchat has to be really easy," Chief Strategy Officer Imran Khan said.
Snap said ad impressions on the platform were up 575% year over year in the fourth quarter. The company also announced 90% of ads sold on Snap were handled through the company's auction platform. The company has tripled the number of advertisers thanks to the automated system.
Revenue per user rose 46% from the prior-year quarter to $1.53. Cost of revenue rose to $1.02, up 5%.
Competition and redesign
Facebook's (FB, Financial) Instagram platform has continuously hindered Snap's growth by copying some its key features, such as filters and stories. For instance, Instagram gained 200 million daily users after introducing its own version of the stories feature. Snap's latest earnings beat and promising signs of user growth, however, has revived hopes it can effectively compete against Instagram.
In November, Snap announced it is redesigning Snapchat in order to make it easier to use. The new design, which is rolling out to all users in the first quarter of this year, will allow certain content to be shared across Facebook and Twitter (TWTR, Financial). In addition, the company is hoping to attract older users to the platform.
According to CNBC, Snap's user growth in the fourth quarter outpaced Facebook, which posted 14% growth. Facebook projects slower ad growth, allowing Snap to secure more market share and compete with Instagram.
Positive Snap growth offers investors an alternative social media stock in a year that Facebook predicts higher operating expenses.
Disclosure: Author does not own any shares in the listed equities.
