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Snapchat stops losing users, stock soars 20%

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Snapchat didn't add any users last quarter, but it didn't lose any either. For some companies, that might not be great news; for Snapchat, it's enough to get...

Posted: Feb 6, 2019 4:33 PM
Updated: Feb 6, 2019 4:33 PM

Snapchat didn't add any users last quarter, but it didn't lose any either. For some companies, that might not be great news; for Snapchat, it's enough to get Wall Street positively ecstatic.

Snap, its parent company, said Tuesday that the messaging app had 186 million daily users in the final three months of 2018, unchanged from the prior quarter and ending a streak of two consecutive quarters of declining users.

The company had said in October that it expected its user numbers to continue declining during the holiday quarter. On a conference call with analysts Tuesday after the report, Snap's interim CFO Lara Sweet said the company is "cautiously optimistic" that daily users will not decline in the first three months of 2019, either.

Debra Aho Williamson, principal analyst with eMarketer, called the surprise leveling off "a positive sign" for the company after a prolonged user decline. Snap stock jumped nearly 20% in after hours trading Tuesday following the earnings report.

While Snapchat's audience growth stalled, the company did manage to squeeze significantly more revenue out of the users it had. Snap's revenue for the holiday quarter hit a record $390 million, up 36% from the same period a year ago and well ahead of what investors had expected.

"In 2018, we focused on building a foundation to scale the business over the long-term by driving sustainable product innovation, scaling our advertising platform, and hiring the leadership team that will help us achieve our future goals," Evan Spiegel, Snap's cofounder and CEO, said in a statement. "We ended the year with user engagement stabilizing."

The earlier dip in users followed a controversial early 2018 redesign of the Snapchat app, which was intended to revive user growth but initially appeared to do the opposite.

The redesign separated content posted by users' friends from content posted by publishers and celebrities, in an effort make Snapchat's confusing interface less confusing. Instead, it set off an outcry.

A Change.org petition asking the company to remove the redesign received more than one million signatures. Prominent users like reality TV star Kylie Jenner and model Chrissy Teigen also publicly took issue with the changes. Snapchat eventually redesigned the redesign after the backlash.

The company has also faced fierce competition from Facebook, which found success in cloning Snapchat's Stories feature on Instagram, WhatsApp and Facebook proper. Instagram Stories now has 500 million daily users.

To make matters worse, Snap has seen an exodus of high-profile executives over the past year. The list includes its chief strategy officer, VP of marketing, VP or product, human resources chief, and not one but two chief financial officers.

On the conference call, Spiegel said Snap's senior team is focused on filling the CFO and marketing roles in particular. But he said it's his belief that Snap's leadership team "has really evolved and is ready for the next stage of growth."

"Change is always difficult," Spiegel said on the call. "This past year was no exception."

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