Zhitong Finance learned that Snap (SNAP.US) announced financial results for the first quarter. Q1 revenue increased 20.4% year over year to $1.19 billion, higher than the forecast of $1.12 billion. Non-GAAP earnings per share of $0.03 were also better than expected. The company provided positive signs that its efforts to reform the digital advertising business are being welcomed by marketers, which has not only boosted revenue but also formed stronger competition with giants such as Google (GOOGL.US) and Meta (META.US). As of press time, the stock surged more than 25% in after-hours trading.

Snap expects second-quarter sales to increase by up to 18% year over year to reach $1.26 billion. The average estimate from analysts was $1.21 billion. The company also expects adjusted EBITDA for the second quarter to be between $15 million and $45 million.

Snap's results in the first quarter of 2024 benefited from improved ad sales and better user reach, its flagship social media app, Snapchat. Snap's ad revenue increased 16% year over year to $1.11 billion.

The company's CEO, Evan Spiegel, has spent the past two years restructuring the company, laying off employees, and canceling projects that failed to increase revenue or user growth. Meanwhile, Snap has restructured its advertising business, introduced new methods to target and measure ads on the Snapchat app, and added a new direct response service. While these changes initially dragged down revenue, the latest results show that these adjustments are working.

“Snap's years of hard work are beginning to pay off for its advertising business,” said Max Willens, senior analyst at Emarketer. With the changes Snap has made and the number of marketers joining the platform, Snap seems to be building some credibility as a platform that can provide services.”

Snap announced an adjusted EBITDA of $45.7 million, compared to less than $1 million in the same period last year. Analysts expected a loss of 67.6 million US dollars. Snap reported a net loss of US$305 million for the first quarter, down 7% from the same period last year.

Snap has been focusing on competing more closely with Meta's social media sites and Alphabet Inc.'s Google, which has now expanded direct response ads to prompt viewers to take immediate action, such as shopping or subscribing to email lists. The company said it is finally seeing an acceleration in demand, and revenue for these products increased 17% from the previous quarter.

This has also attracted smaller advertisers to spend money on Snapchat, and responding directly to ads helps expand their ad business base. The company said in a letter to investors that the number of SMEs advertising on the platform increased 85% compared to the same period last year.

In a statement, Spiegel said: “The value we provide to our community and advertising partners has translated into improved financial results. Our large, growing, hard-to-reach community, brand safety environment, and omnichannel advertising solutions make us an increasingly important partner for businesses of all sizes.”

The company said users spent 125% more time watching Spotlight in the last quarter. Spotlight is a scrollable video source that provides a TikTok-like experience. Just the week Snap announced its results, the US government took action to force its main competitor, ByteDance, to divest its TikTok subsidiary. As TikTok may be banned in the US, investors will be watching closely to see if Snapchat and its peers will reap any benefits in the coming quarters.

In the quarter ending March 31, the number of daily active users of Snapchat reached 422 million, an increase of 10% over the same period last year. The company expects 431 million users in the current quarter, and both indicators of users and length of use have exceeded analysts' average expectations.

The company continues to invest in machine learning, augmented reality, and artificial intelligence technology to help recommend the right content to Snapchat users and improve its digital advertising products. This type of calculation requires spending on technical infrastructure, and Snap is the first to provide guidance on annual spending in this regard. The company expects to spend 83 cents to 85 cents per user each quarter for the rest of the year.