Snap beats revenue and user growth estimates, announces $500 million buyback

Written by Sheila Dang

(Reuters) – Snap missed Wall Street expectations for both quarterly revenue and user growth on Tuesday, as the parent company of messaging app Snapchat managed to lure some advertisers with better-performing ad features.

It also announced a share repurchase program of up to $500 million.

Shares of Snap initially fell 8% in after-market trading before rising 10% to $12.

The Santa Monica, Calif.-based company, which generates most of its revenue from selling digital ads, has long struggled against larger competitors such as Meta Platform, which owns Facebook and Instagram. To better compete, Snap invested in machine learning to improve ad targeting to users and made it easier for small and medium-sized businesses to advertise on Snapchat.

Revenue rose 15% year over year to $1.37 billion in the third quarter ended Sept. 30, beating the average analyst estimate of $1.36 billion.

Snap said it expects current-quarter revenue in the range of $1.51 billion to $1.56 billion. Wall Street was targeting the higher end of the range, according to Refinitive data.

The fourth quarter includes the holiday shopping season, a critical period where brands spend heavily to promote their products and services. Ads by large companies have historically helped boost Snap's year-end business, but demand from these companies has been low in recent months, Snap said in a letter to shareholders.

Two new ad formats could help drive demand for large advertisers, including one that allows advertisers to promote their business on Snap Maps.

“We're seeing brands trying to bring people back to their stores and establishments,” Snap CEO Evan Spiegel said during an earnings call with analysts. “The response has been great.”

Snapchat's daily active users rose 9% year over year to 443 million, beating analyst estimates of 441 million.

Last month, Snap said it would introduce a redesign of Snapchat that simplifies the app from five separate sections to three. Early testing of the redesign showed it helped increase usage among people who weren't heavy users of Snapchat before, Spiegel said.

Snap reported adjusted earnings per share of 8 cents in the third quarter, above Wall Street expectations of 5 cents.

(Reporting by Sheila Dang in Austin, Texas Editing by Matthew Lewis and Chris Reese)