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Snapchat update creates opportunity to fight Instagram

Snapchat reported a recent surge in users and revenue, as it seeks to convince investors it can compete with Instagram.

Snapchat owner Snap Inc reported this week surging growth in users and revenue in its latest quarter, reviving hopes that it can survive competition with Facebook Inc's Instagram and sending its shares up more than 20 percent.

Investor enthusiasm for the instant messaging application company faded after its initial public offering last year.

But Snap Inc said customers were now staying longer on the Android version of its app following the fixing of software bugs, and advertisers were taking to an auction-based system that made it cheaper and easier to buy ads.

Snapchat's daily active users rose to 187 million in the quarter that ended December 31, from 178 million in the previous three months, beating analysts' average expectation of 184.2 million users, according to financial data and analytics firm FactSet.

Revenue rose 72 percent to $285.7m, better than expected compared with earlier forecasts of $253.2m, as companies advertised more in the key holiday quarter, Reuters news agency reported.

Competition with Instagram

Instagram, with more than twice the daily users of Snapchat and backed by Facebook's financial firepower, has threatened to stamp out its rival by copying features such as photo filters and disappearing slide shows.

Confidence that the two could coexist in the social media sector was shaken when Snapchat's user growth stalled last year.

Analysts, though, said that Snapchat appeared willing to look inward and try to fix problems rather than be distracted by Instagram.

"They are going to continue to be competitors, and Snap is doing a creditable job of competing for revenue," analyst Michael Pachter of Wedbush Securities told Reuters.

Snapchat is courting advertisers in an internet ad market dominated by Facebook and Alphabet Inc's Google, which together control half the market share, according to research firm eMarketer.

While Snapchat ads once were primarily bought by large brands with household names, revenue from smaller businesses more than doubled from the third quarter to the fourth, Chief Strategy Officer Imran Khan said on a conference call.

"We know that in order to truly scale our business, advertising on Snapchat has to be really easy," Khan said.

Snapchat redesign

Amid concerns Snapchat would not be able to keep growing rapidly in the face of Instagram's competition, Snap's stock price had fallen by half from its $29.44 high after its initial public offering last year and has not traded above the initial public offering price of $17 since July 10.

Snap had not reported upbeat results since going public.

In addition to fixing bugs, the company is redesigning Snapchat to make it easier to use. Chief Executive Evan Spiegel said the new version had rolled out to 40 million users and would launch worldwide in the first quarter.

The update is meant to be more of a structural change, in terms of how Snapchat views the content its users and publishing partners produce, Snap Inc reported. 

Acknowledging a perception that Snapchat is popular mainly among millennials, Spiegel said: "We believe that the redesign has also made our application simpler and easier to use, especially for older users."

Snap posted a net loss of $350m, or 28 cents per share, compared with a loss of $170m, or 20 cents per share, a year earlier.

Still, the company expects its year-over-year revenue growth rate to be moderate in the current quarter compared with the fourth quarter, Snapchat's Chief Financial Officer Drew Vollero said.

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