You may be surprised to learn that Snapchat was not profitable until nearly two years after its IPO – that is, until the third quarter of 2020 when it beat analysts’ estimates on revenue and finally generated a profit of US $0.01 per share (1.23 billion shares outstanding). Snap beat estimates for Q3 by $127 million, generating $679 million and narrowing its net loss from $227 million to $200 million. It may feel surprising that Snap has struggled to turn a profit given its status as the go-to instant messaging app that has been reigning since at least 2010.
While Snap does face competition for some of its features such as stories with Instagram and Facebook, many would agree that Snap remains without any true competitors for its core offering: instant photo communication. Interestingly, Snapchat has characterized itself as a camera app more than a communication service. While its users may find this shocking, Snap’s strategy seems to finally be getting the credit it deserves. In 2019, a mind-numbing 1.3 trillion snaps were created; the average user engages for 30 minutes a day; and Snap has reached 90% of US 13-24 year olds and over 75% of 13-34 year olds.
Essentially all of Snap’s revenue has been generated from advertising (98%), with the remaining non-material amount coming from its “Spectacles”, Snap’s only physical product. 69% of revenues come from America, 16% from Europe and the remaining come from “others”. In its most recently completed quarter, Snap reported 249 million daily active users – up 18% from the same quarter last year. Interestingly, Snap has opted to not offer any guidance for Q4, a move that would normally send a share price tumbling. Amid a COVID-19 reality, however, this has become somewhat of a norm in the industry, and Snap’s stock is up 158% on the year.