Snap (NYSE:SNAP) Misses Q2 Revenue Estimates, Stock Drops 23.7%

Jabin Bastian /
2022/07/21 4:18 pm EDT

Social network Snapchat (NYSE: SNAP) fell short of analyst expectations in Q2 FY2022 quarter, with revenue up 13.1% year on year to $1.11 billion. Snap made a GAAP loss of $422 million, down on its loss of $151.6 million, in the same quarter last year.

Is now the time to buy Snap? Access our full analysis of the earnings results here, it's free.

Snap (SNAP) Q2 FY2022 Highlights:

  • Revenue: $1.11 billion vs analyst estimates of $1.13 billion (2.05% miss)
  • EPS (non-GAAP): -$0.02 vs analyst estimates of -$0.03
  • Free cash flow was negative $147.4 million, down from positive free cash flow of $106.2 million in previous quarter
  • Gross Margin (GAAP): 59.8%, up from 54.6% same quarter last year
  • Daily Active Users: 347 million, up 54 million year on year

“While the continued growth of our community increases the long-term opportunity for our business, our financial results for Q2 do not reflect our ambition," said Evan Spiegel, CEO.

Founded by Stanford University students Evan Spiegel, Reggie Brown, and Bobby Murphy, and originally called Picaboo, Snapchat (NYSE: SNAP) is an image centric social media network.

Businesses must meet their customers where they are, which over the past decade has come to mean on social networks. In 2020, users spent over 2.5 hours a day on social networks, a figure that has increased every year since measurement began. As a result, businesses continue to shift their advertising and marketing dollars online.

Sales Growth

Snap's revenue growth over the last three years has been exceptional, averaging 50.2% annually. The initial impact of the pandemic was positive for Snap's revenue, but growth rates subsequently normalized.

Snap Total Revenue

This quarter, Snap reported an mediocre 13.1% year on year revenue growth, and this result fell short of what analysts were expecting.

Ahead of the earnings results the analysts covering the company were estimating sales to grow 19.9% over the next twelve months.

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Usage Growth

As a social network, Snap can generate revenue growth by increasing user numbers, and by charging more for the ads each user is exposed to.

Over the last two years the number of Snap's daily active users, a key usage metric for the company, grew 20.7% annually to 347 million users. This is a strong growth for a consumer internet company.

Snap Daily Active Users

In Q2 the company added 54 million daily active users, translating to a 18.4% growth year on year.

Key Takeaways from Snap's Q2 Results

With a market capitalization of $25.4 billion, more than $4.87 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

It was great to see that Snap’s user base is growing. That feature of these results really stood out as a positive. On the other hand, it was unfortunate to see that Snap missed analysts' revenue expectations and the revenue growth was quite weak. Overall, it seems to us that this was a complicated quarter for Snap. The company is down 23.7% on the results and currently trades at $12.49 per share.

Snap may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.