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 per cent to US$1.19 billion, beating analysts’ expectations of US$1.11 billion, according to LSEG data.

Snap shares, however, seesawed in extended trading after rising as much as 14 per cent 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 Kesler said.

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

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The social media company’s subscription service, Snapchat+, which gives subscribers access to exclusive and pre-release features and costs US$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 US$368 million in the quarter from US$360 million a year earlier.

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