Snap (NYSE:SNAP) Misses Q3 Revenue Estimates, Stock Drops 21.5%

Kayode Omotosho /
2022/10/20 4:19 pm EDT

Social network Snapchat (NYSE: SNAP) missed analyst expectations in Q3 FY2022 quarter, with revenue up 5.71% year on year to $1.12 billion. Snap made a GAAP loss of $359.5 million, down on its loss of $71.9 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) Q3 FY2022 Highlights:

  • Revenue: $1.12 billion vs analyst estimates of $1.13 billion (0.91% miss)
  • EPS (non-GAAP): $0.08 vs analyst estimates of -$0.01 ($0.09 beat)
  • Free cash flow of $18.1 million, up from negative free cash flow of $147.4 million in previous quarter
  • Gross Margin (GAAP): 58.6%, in line with same quarter last year
  • Daily Active Users: 363 million, up 57 million year on year (vs analyst estimates of 359 million)
  • The company has not provided guidance for Q4

"This quarter we took action to further focus our business on our three strategic priorities: growing our community and deepening their engagement with our products, reaccelerating and diversifying our revenue growth, and investing in augmented reality," 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 impressive, averaging 46.5% 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 5.71% 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 12.1% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

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 363 million users. This is a strong growth for a consumer internet company.

Snap Daily Active Users

In Q3 the company added 57 million daily active users, translating to a 18.6% growth year on year.

Key Takeaways from Snap's Q3 Results

Sporting a market capitalization of $17.9 billion, more than $4.42 billion in cash and with positive free cash flow over the last twelve months, we're confident that Snap has the resources it needs to pursue a high growth business strategy.

It was great to see that Snap’s user base is growing, although the company did miss analyst estimates on this metric. It was unfortunate to see that Snap missed analysts' revenue expectations and the revenue growth was quite weak. Overall, this quarter's results were not the best we've seen from Snap. The company is down 21.5% on the results and currently trades at $8.48 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.