Snap, the parent company of messaging app Snapchat, has released its fourth-quarter results, with stocks falling despite beating expectations.

Yesterday the social media firm announced financial results for the quarter and full-year ended December 31, 2020. Fourth quarter revenue increased 62% year over year to $911m, with daily active users increasing 22% year over year to $265m.

Fourth-quarter operating cash flow improved 21% year over year to $53m and net loss and adjusted EBITDA were $113m and $166m in Q4 2020, respectively, compared to $241m and $42m in the previous year, respectively.

Snap noted that it has continued to invest in its camera and augmented reality platforms throughout the quarter, as well as its Discover platform, launching 97 new international Discover channels.

“We’re grateful for the opportunity to serve our community and partners through this challenging period of time,” said Evan Spiegel, Snap CEO. “Our team has worked tirelessly to help people stay close with their friends and family even while they are physically apart, and we’re proud of the strong results we delivered for our advertising partners this quarter and over the full year. We delivered our first full year of Adjusted EBITDA profitability and, as we look towards the future, we’re excited to build on our investments in augmented reality, mapping, and content to drive our ongoing growth.”

However, despite promising results and user growth, stocks fell be 10% in after-hours trading. This has been attributed to its Q1 2021 outlook, which estimates that revenue will be between $720m and $740m, compared to $462m in Q1 2020, lower than analyst expectations.

Snap also warned that Apple’s imminent privacy update, which requires users to give permission for their data to be tracked across applications or websites owned by different companies, could impact the platform, with CFO Derek Andersen commenting that this could “present another risk of interruption to demand”.

Aaron Goldman, CMO at Mediaocean said:

“Snap continues to solidify its place in the hearts of consumers and wallets of advertisers. Despite competition from TikTok and other platforms, Snap’s Q4 revenue growth of 62% year on year demonstrates the power – and entrenchment – of its platform. The many investments Snap made in its ad tech stack are paying out including the timely release of dynamic product ads which had an outsized impact during the Q4 seasonal shopping period.

“As we look out to 2021, Snap’s focus on premium video with Discover originals as well as location data from acquiring StreetCred promise to position Snap squarely at the intersection of commerce and content – two areas ripe for post-pandemic acceleration. For brands, taking an audience-first approach to omnichannel advertising means that Snap will play a critical role in the media mix.”

During the quarter, Snap also launched Spotlight, a new feature that showcases “the most entertaining Snaps from our community”, in a similar way to TikTok. Spotlight has already grown to over 100 million monthly active users.

Yuval Ben-Itzhak, president of Socialbakers said:

“Snap’s Q4 earnings are testament to its dedication to innovation – not for innovation’s sake, but for its loyal and growing user base. 2020 saw Snapchat become more popular than ever as it expanded into a robust entertainment app built for changing consumer habits. Between Discover, Show and Snap’s gaming offering, the platform caters to younger consumers who are spending more and more time online. During the pandemic, Snapchat rose to the challenge of providing a fun way to connect with friends and family, and this appeal with 13-34-year-olds has made the platform extremely attractive to advertisers – which shows in their Q4 revenues.

He predicts that the platform could even become profitable in 2021 thanks to Spotlight, its “answer to TikTok” and its focus on AR and 3D effects innovation.

“This, coupled with budgets skyrocketing as we approach the tail-end of the COVID-19 pandemic, means Snap is likely to reap major rewards from advertisers in 2021,” he said.

“2021 could even be the year Snap finally becomes profitable, by combining rapidly growing user numbers with new ways for advertisers to reach them. The question is how users will respond to such innovations – will we retreat back to our old ways post-pandemic, seeking simple conversations and basic brand ads, or will 3D group chats and AR advertising become second nature? If it’s the latter, we’re certain to see Snap leading the charge.”

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