Snapchat sets sights on India growth as TikTok is forced out

Snap Inc, the parent company of short video app Snapchat, recorded a significant spike in user growth in its 'Rest of World' geography in the second quarter of 2020, a key geography for its future growth, but one where it is struggling to convert usage into revenue.

The company beat analyst expectations for revenue growth in the second quarter, reporting a 17% increase in quarterly revenue to US$454.2 million. While this was higher than expectations, it marks a slowdown from the $462 million in revenue it reported in the first quarter, and the $561 million in revenue from Q4 2019.

Europe brought in by far the biggest revenue growth of 30% year-on-year, followed by North America at 18%. Europe represented 17% of total revenue in Q2, as North America continues to account for the lion's share at 66%.

The picture in Snap's other geography, 'Rest of World', which encompasses key markets in Asia-Pacific and Latin America, wasn't as sunny. That geography, which represented 15% of Snap's total revenue in Q2, saw a small 2% rise in revenue in the quarter. Despite accounting for the largest user growth in the quarter—with daily active users growing by 37% to 77 million in 'Rest of World'—the average revenue per user in the geography tumbled 25% to $0.89.

This comes one month after Snap outlined plans to grow its presence in Southeast Asia, hiring its first Singapore-based employee. As it announced its plans to open an office in Singapore later this year, once the COVID-19 pandemic eases, the company said the region has grown in importance over the past 12 months.

In a call with analysts announcing the second-quarter results, Snap co-founder and CEO Evan Spiegel singled out India as a fast-growing market for the company, claiming Snapchat achieved over 100% growth in daily active users in India over the past year. The photo and video-sharing app has an opportunity in India to fill the void left by TikTok, which was banned in India last month over security concerns. Australia is also a "core market" for Snapchat, Spiegel said.

The per user revenue loss in 'Rest of World' was offset by a 16% jump in average revenue per user in Europe and 9% growth in North America, with overall average revenue per user remaining flat at $1.91.

Globally, Snapchat's daily active users grew 17% to 238 million, slightly missing the 239 million it had estimated, demonstrating that sudden spikes in social-media app usage during COVID-19 may be levelling off.

In the second quarter, Snap’s net loss widened to $326 million from $255.2 million a year earlier.

Operating expenses expanded by 19% year-on-year to $307 million, as more budget was allocated to research and development, and sales and marketing, but general and administritive costs were reduced from the prior quarter.

The social media company did not provide projections for the current Q3 period "given uncertainties related to the ongoing COVID-19 pandemic and the rapidly shifting macro conditions".

But in the call with analysts, chief financial officer Derek Andersen said the company expects current Q3 year-over-year revenue growth to be 32% through July 19. But Andersen warned that operating conditions "may remain volatile" and that events that usually drive advertising revenue in Q3 may be disrupted by COVID-19.

"While we are cautiously optimistic that these trends could sustain over time, we are also conscious that operating conditions may remain volatile and that economic conditions could further deteriorate," he said. "For example, advertising demand in Q3 has historically been bolstered by factors that appear unlikely to materialize in the same way they have in prior years, including the back to school season, film release schedules and the operations of various sports leagues."