Snapchat sees huge user growth in Q2, thanks to better exclusive content

Snapchat headquarters in Venice, CA.
Snap headquarters (Snap)

Snapchat recorded a massive increase in daily active users during the second quarter, and attributed the growth in part to the exclusive content in its Discover section.

The company added 13 million DAUs, bringing its total up to 203 million. The company also saw its audience watching content on Discover grow by more than 35% year over year, and the total daily time spent by users watching Discover increase by more than 60% year over year.

Snap CEO Evan Spiegel said that growth has come because of publishers like ESPN expanding their content slates on the platform, and because Snap investing in improving content discovery.

“By investing in premium content, we are seeing the quality of our platform improve, in addition to increasing engagement with longer-form content. We believe this is best for the overall health of our content business,” said Spiegel, according to a Seeking Alpha transcript.

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UBS upgraded Snap to Neutral based on the better-than-expected earnings performance, and estimated that the company can grow to more than 250 million DAUs by 2022 thanks to its product and user experience improvements coupled with its content strategy.

UBS analyst Eric Sheridan predicted that Snap can bring its ad monetization up to levels closer to its social media platform rivals.

“We believe Snap's current ad products provide a compelling value proposition for both brand and performance advertisers, translating into a ~30%+ rev CAGR ('18-'23E),” wrote Sheridan in a research note.

Barclays analyst Ross Sandler said Snap’s improved user and revenue growth come at an opportune time when Facebook and Google are facing increased regulatory pressure.

“SNAP's message is resonating with the mobile advertising community, the user base is accelerating and much larger than any of the peers (Facebook, Instagram, Twitter, Pinterest, etc.) in the coveted 18-34 demo,” wrote Sandler in a research note.