By Georgia Wells 

Snap Inc. on Tuesday reported a surge in growth in users and revenue in the first quarter, as homebound users turned to its chat app for connection with friends amid the pandemic.

The results mark a surprise as many analysts estimate sharp decreases in digital ad spending in the quarter, the first to show the impact of the coronavirus crisis. As Snap is the first social-media company to report results for the quarter, its performance could bode well for heavyweights Facebook Inc. and Alphabet Inc., which deliver earnings next week.

Communication with friends on the company's Snapchat app increased by more than 30% in the last week of March compared with the last week of January, the company said. In areas hardest hit by the pandemic, communication with friends on Snapchat increased more than 50%.

Following the first-quarter report, Snap shares jumped more than 19% in after-hours trading, almost wiping out the stock's losses for the year.

The Santa Monica, Calif., company said its daily user base rose 11 million from the previous quarter to 229 million, marking the fifth consecutive quarter of growth. Snapchat's ability to increase its user count is crucial to attracting advertisers and revenue. Analysts polled by FactSet had expected the user count to rise to 224 million.

Snap's revenue rose 44% in the first quarter to $462.5 million, up from $320.4 million a year earlier and significantly beating analyst estimates of $430 million, according to FactSet.

"Snapchat is helping people stay close to their friends and family while they are separated physically," Snap Chief Executive Evan Spiegel said in prepared remarks.

On a call with analysts, Mr. Spiegel also attributed some of his company's ability to increase its revenue to high growth rates in the first two months of the quarter, which offset lower growth in March.

The results indicate that Snap may be well positioned despite increasing uncertainty in the global economy.

"Snap seems to have been protected as it relies more on larger advertisers," said Jim Cridlin, global head of innovation and partnerships at Mindshare, a unit of global ad behemoth WPP. Those larger advertiser budgets are more stable than small business advertisers and their businesses are more likely to remain open, he said.

Nevertheless, the company didn't provide guidance for the second quarter, citing the continuing pandemic and rapidly changing economic conditions. In the past, Snap has provided forecasts for revenue and adjusted earnings.

Mr. Spiegel said the pandemic has forced a shift to digital behavior across every aspect of people's lives that could benefit Snap. As people are sheltering in place, he said, their communication, commerce, entertainment, fitness and learning habits are forcing companies to shift to digital more quickly.

"We believe that this will accelerate the digital transformation across many businesses, and that the heightened levels of activity we are seeing today will lead to a sustained uplift in the digital economy over time," Mr. Spiegel said.

Jeremi Gorman, Snap's chief business officer, said the company has also shifted its sales team to focus on categories that are faring better during the pandemic, such as gaming, home entertainment, e-commerce and consumer packaged goods.

Still, Snap is far from profitable. Snap reported its loss shrank slightly in the first quarter to $305.9 million, or 21 cents a share, from $310.4 million, or 23 cents a share, in the same period a year ago. Analysts polled by FactSet had expected a loss of 20 cents a share.

In 2019, Mr. Spiegel had made it his company's "stretch" goal to become profitable that year.

Write to Georgia Wells at Georgia.Wells@wsj.com

 

(END) Dow Jones Newswires

April 21, 2020 18:06 ET (22:06 GMT)

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