As we examined yesterday in light of Stripe’s big raise, Covid-19’s economic fallout has a polarizing effect on business. Anything that’s high-touch is clearly suffering, including events and brick & mortar commerce. Quarantine-friendly fare — online payments, virtual office, and gaming — conversely sees usage spikes.
We can now put Snapchat in the latter bucket, validated by Q1 earnings. It reported $462 million in revenue which matched guidance and handily beat analyst estimates of $430 million. Earnings per share were -$.08, slightly worse than analyst expectations of -$.07. Shares rose as high as 20 percent in after-hours trading.
As for usage growth that stands behind those financials, the all-important daily active users (DAUs) reached 229 million for the first time. This is a 20 percent year-over-year boost and 4.5 million more users than analysts expected. It also reports 35 percent year-over-year growth in time spent watching Discover content.
These figures aren’t surprising, as Snap already reported early March usage spikes. Snapchat’s unique combination of communications, content discovery and whimsy has positioned it as go-to entertainment fodder for shelter-in-place masses. Snap CEO Evan Speigel said as much in an earnings statement.
“Snapchat is helping people stay close to their friends and family while they are separated physically,” he said. “I am proud of our team for overcoming the many challenges of working from home during this time while we continue to grow our business and support those who are impacted by COVID-19.”
Notably, Snap managed to correlate this usage growth to revenue. Those two things normally go hand-in-hand for ad-supported social media, but these are abnormal times. In fact, advertising has been one of the hardest-hit categories in the aggregate. In down times, marketing budgets are usually first to go.
Of course, the full effects haven’t been reported yet, as March’s full-scale global pandemic realizations only represent a small portion of Snap’s Q1 timeframe. Furthermore, ad spend is a trailing indicator of macro-economic health. So we could see contraction in Q2 from Snap and other ad-supported media.
Snap addressed this in its earnings announcement, claiming it will redeploy its sales team to address advertisers in quarantine-conducive verticals. That includes home entertainment, consumer packaged goods and gaming. One example Speigel offered was helping movie studios pivot to digital releases.
Fortunately for Snap, it accomplished a sizeable Wall Street rebound last year. It could see some of that reversed in the coming months, but that previous rise gives it some leeway. Also working in its favor is a track record for being nimble and creative when it needs to be. We’ll be watching closely as that unfolds.