Revenue in the June quarter was crimped when the company shipped an update to its advertising auction that inadvertently allowed marketers to buy ads at “substantially reduced prices,” Snap said. That issue has been fixed, and “advertising revenue growth has improved,” Snap said in a letter to shareholders Tuesday. The company, which gets about 90% of its revenue from advertising, forecast overall sales in the current period that will likely be higher than analysts projected.
Snap and Chief Executive Officer Evan Spiegel have spent years overhauling the company’s advertising technology in an effort to improve user targeting and drive direct sales. Those changes had helped Snap beat revenue expectations in six of the past eight quarters heading into Tuesday’s report.
In its investor letter, Snap highlighted its Sponsored Snaps advertising unit, which places paid messages in a user’s messaging inbox just like those from their friends. Snap debuted the new ads last fall, and said they represent a “significant pool of inventory” as the company looks for new places for marketers to reach users inside the Snapchat app. Given the new ad inventory, the company told investors it must also focus on increasing demand in order to raise ad prices.Snap has also built a fast-growing subscription business to decrease its reliance on advertising, which can ebb and flow as marketing budgets are adjusted in times of economic uncertainty. Snapchat+, the company’s monthly subscription product, has almost 16 million paying subscribers, up from 15 million in the prior quarter and higher than Wall Street analysts expected. These subscriptions make up the bulk of Snap’s “other revenue” category, which reached $171 million in the second quarter, growth of 64%.
Spiegel is also restructuring Snap’s engineering teams to “better align” with its business priorities, according to the shareholder letter. As part of the change, Eric Young, Snap’s senior vice president of engineering, is departing the company.
Snap reported sales of $1.345 billion in the quarter ended June 30, slightly less than the $1.35 billion analysts were looking for. Third-quarter revenue will be $1.48 billion to $1.51 billion. Analysts on average had predicted sales at the low end of that range.
The Santa Monica, California-based company posted a second-quarter net loss of $262.6 million, or 16 cents a share. That compared with a loss a year earlier of $248.6 million, or 15 cents. Daily active users climbed 9% to 469 million for the period, topping analysts’ average prediction of 468.1 million.
