Having innovated its way out of the doldrums, the owner of social media messaging app Snapchat plans to raise $1 billion for more augmented reality and content.
Last year Snap saw declines in its user numbers and high executive turnover. But things turned around in the first quarter, and in the second quarter, the company boosted its user growth and revenue, beating analysts’ estimates. Snap’s revenue, which it earns from advertising, jumped about 48%. Its number of daily active users – a figure closely watched by investors and advertisers – increased to 203 million, from 190 million in the prior quarter and 188 million a year earlier.
Snap’s renewed growth is attributed to an improved version of its Android app, and more significantly, the launch of new augmented reality (AR) photo lenses. Snap has been lauded for its innovations in the use of AR. Its AR lenses, filters which overlay features like bunny ears onto a user’s image, have been a massive hit.
CFO Derek Andersen said that 7 million to 9 million of the 13 million daily active users Snap gained in the second quarter were from the new AR lenses. CEO Evan Spiegel elaborated, saying, “The popularity of these lenses drew millions of people into our rebuilt Android application, where they experienced the new and improved Snapchat that led to increased engagement.”
Snap has also introduced mobile gaming into Snapchat through partnerships with game developers such as Zynga, and invested in more content on the Discover part of the app, which offers original shows and content from media partners. According to Kamal Khan, an analyst with Investing.com, its investments in content increased the time spent on the app by 60% compared with last year.
Now Snap wants to do more. As CEO Evan Spiegel said in a memo, “We will continue to focus on developing our content, gaming, and augmented reality platforms to enhance the Snapchat experience for our community.” On August 6 the company announced plans to raise $1 billion in short-term debt. “Snap will offer $1 billion in convertible senior notes that will mature in 2026, at which point it will choose to pay investors in cash, stock or a combination of both,” Reuters reports.
Keeping the newfound momentum going could help Snap keep users engaged, which is crucial. Given the often fickle nature of Snapchat users, most of whom are aged 13 to 25, the company will have to keep the innovation coming in the face of competition from newer social media apps like TikTok. Big platforms like Facebook, by virtue of sheer size and ubiquity, also pose potential threats.