Snap surged and soared, yet users continue to abandon Snapchat in America.

      Snap experienced a strong quarter, and the market responded positively, with shares rising as much as 13% in after-hours trading after the company surpassed expectations. However, it’s important to note where this rally started: the stock is near its all-time lows, having declined approximately 37% this year.

      The headline figures were indeed promising. Revenue increased by 19% to $1.6 billion, surpassing forecasts, largely due to a surge in advertising related to the World Cup. The net loss decreased to $164 million, free cash flow became positive at $121 million, and adjusted earnings significantly exceeded estimates. Snap also provided guidance for the current quarter that is above expectations.

      However, a deeper look reveals uneven growth. Advertising, which is central to Snap's business model, grew only 9%, which is weak compared to its larger competitors. The notable growth figure was an 85% rise in "other" revenue to $316 million, stemming from subscriptions, storage, and paid lenses. This indicates Snap is generating more revenue from its existing users rather than increasing sales of its core product.

      The audience is a significant issue, as indicated by the revenue distribution. Daily users reached 493 million, a 5% increase, but all of the growth came from international users. North American daily users fell 7% to 92 million, and Europe saw a 2% decline. Only users from the rest of the world grew. This distinction is crucial, as a North American user is valued at around $10 per quarter, while a user from the rest of the world is worth only $1.

      There is a positive aspect to this: North American revenue still grew by 15%. The remaining users are paying more, with revenue per user increasing by 23% due to stronger advertising prices. Snap is extracting more value from a smaller, wealthier user base. However, raising prices on a diminishing audience cannot be sustained indefinitely.

      Nonetheless, this does not indicate a resurgence in top-line growth. The cash flow improvement is attributed to cost management: adjusted profit rose to $250 million from $41 million in the previous year. Snap has significantly reduced its workforce this year and is aiming for $500 million in annual savings. This is a company that has halted its losses, not one that is actively growing.

      Looking ahead, CEO Evan Spiegel has plans for the additional funds from the turnaround, and they don’t involve Snapchat. Instead, he is focusing on Specs, Snap’s augmented-reality glasses priced at $2,195, set to be launched after an event in Los Angeles on September 16. Spiegel describes this as Snap’s “largest long-term opportunity” and is investing heavily in it.

      Investors, however, remained skeptical. During the call, they questioned the feasibility of competing against major players like Apple, Meta, and Alphabet independently. They also sought clarification on whether this strategy is viable given Snap's current size.

      When asked about pre-order numbers, Spiegel only mentioned “a huge amount of interest” without providing specific figures, suggesting that demand may not be as strong as hoped. On the timeline, he was straightforward: mass-market adoption wouldn’t happen until the end of the decade.

      Thus, the day’s events unfolded: the earnings beat was genuine, the relief was palpable, and the stock surge was real. However, the more challenging question remains unanswered: where will Snap find its next wave of valuable users in the markets where it is currently losing ground? A reduced cost base and a temporary boost from the World Cup may have bought some time, but neither will reclaim the American market.