Snap sees upbeat fourth quarter as new ad features start to pay off

Illustration shows Snapchat logo

(This Oct.24 story has been refiled to add dropped letter in analyst name, in paragraph 4)

By Khushi Mandowara

(Reuters) - Photo messaging app Snap on Tuesday reported a surprise rise in quarterly revenue and forecast an upbeat current quarter as its efforts to bolster ad-targeting tools with artificial intelligence showed signs of paying off. Revenue for the third quarter ended September rose 5% to $1.19 billion, beating analysts' expectations of $1.11 billion, according to LSEG data.

Snap shares, however, seesawed in extended trading after rising as much as 14% following the results as some analysts expressed doubts about the company's ability to hold its own in the face of tough competition from bigger rivals, including Meta.

While the company has returned to growth, concerns on whether it can go back to double-digit growth remains, Third Bridge analyst Scott Kessler said.

For the fourth quarter, the Santa Monica, California-based company expects revenue to be between $1.32 billion and $1.38 billion. Analysts were expecting revenue of $1.33 billion.

Snap, however, said it saw a risk to its sales in the fourth quarter as a war in the Middle East could tamp down spending from a large number of brand-oriented advertising campaigns.

The social media company's subscription service, Snapchat+, which gives subscribers access to exclusive and pre-release features and costs $3.99 a month, hit more than 5 million members in the third quarter.

"I think what you're seeing is the work starting to show up in the output, and the fundamental progress we're making with the ad platform, and that's showing up in the ARPU (average revenue per user), which is great news for the business," CEO Evan Spiegel told analysts.

Daily active users on Snapchat were 406 million, beating Wall Street expectations of 405.7 million.

"Risks remain in place for next year, as Snap will still need to do much better than this to regain the lost ground," said Thomas Monteiro, senior analyst at Investing.com.

Snap's net loss widened to $368 million in the quarter from $360 million a year earlier.

Shares of the company were marginally higher at $9.75 in after-hours trading.

(Reporting by Khushi Mandowara in Bengaluru; Editing by Anil D'Silva)