(Reuters) -Shares in Snap jumped nearly 25% in premarket trading on Friday after targeted ads and new features helped the owner of the photo messaging app beat Wall Street expectations for first-quarter revenue and user growth.
The Snapchat parent now expects second-quarter revenue between $1.23 billion and $1.26 billion, above analysts’ estimates of $1.22 billion, according to LSEG data.
Snap said its business was improving faster than expected due to upgrades of its ad system and higher demand for features that help brands drive sales or website clicks.
Social media platform Pinterest climbed 4.4%, while Snapchat’s larger rival Meta Platforms edged 1.2% higher after a sharp drop on Thursday.
“Revenue per user increased year over year for the first time since early 2022, reflecting the strength in the broader advertising market and Snap’s efforts to revive growth,” Morningstar analyst Michael Hodel said.
Daily active users of Snapchat increased to 422 million during the quarter, above estimates of 419.6 million. The company said first-quarter revenue grew 21% to $1.2 billion, above estimates of $1.12 billion.
While 11 Wall Street brokerages raised their price targets on Snap’s shares following results, most analysts said they were looking for more consistent evidence that company’s business has improved.
“Snap’s results have historically been choppy and we are hesitant to extrapolate from one quarter of strong results,” according to J.P.Morgan analysts.
Average rating of 41 brokerages covering the stock is “hold”.
The stock has lost about a third of its value this year as the social media company struggled to compete for advertising dollars against heavyweights such as Meta Platforms.
“While operating margins continue to slowly improve, given better advertising revenue and cost controls, management is still several years from achieving operating profitability, something we think will take until 2028 to achieve,” Hodel said.
(Reporting by Medha Singh in Bengaluru and Amanda Cooper in London; Editing by Alun John and Shounak Dasgupta)
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