Social network Snapchat (NYSE: SNAP) beat analysts' expectations in Q3 FY2023, with revenue up 5.32% year on year to $1.19 billion. Guidance for next quarter's revenue was also better than expected at $1.35 billion at the midpoint, 1.16% above analysts' estimates. Turning to EPS, Snap made a non-GAAP profit of $0.02 per share, improving from its loss of $0.22 per share in the same quarter last year.
Is now the time to buy Snap? Find out in our full research report.
Snap (SNAP) Q3 FY2023 Highlights:
- Revenue: $1.19 billion vs analyst estimates of $1.11 billion (7.04% beat)
- EPS (non-GAAP): $0.02 vs analyst estimates of -$0.05 ($0.07 beat)
- Revenue Guidance for Q4 2023 is $1.35 billion at the midpoint, above analyst estimates of $1.33 billion (no formal guidance, this is an internal forecast)
- Free Cash Flow was -$60.7 million compared to -$119 million in the previous quarter
- Gross Margin (GAAP): 53.2%, down from 59.9% in the same quarter last year
- Daily Active Users: 406 million, up 43 million year on year (roughly in line)
“Our revenue returned to positive growth in Q3, increasing 5% year-over-year and flowing through to positive adjusted EBITDA as our reprioritized cost structure demonstrated the leverage in our business model,” 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.
Snap's revenue growth over the last three years has been very strong, averaging 33% annually. This quarter, Snap beat analysts' estimates but reported mediocre 5.32% year-on-year revenue growth.
Guidance for the next quarter indicates Snap is expecting revenue to grow 3.67% year on year to $1.35 billion, improving on the 0.14% year-on-year increase it recorded in the same quarter last year. Ahead of the earnings results, analysts covering the company were projecting sales to grow 7.79% over the next 12 months.
While most things went back to how they were before the pandemic, a few consumer habits fundamentally changed. One founder-led company is benefiting massively from this shift and is set to beat the market for years to come. The business has grown astonishingly fast, with 40%+ free cash flow margins, and its fundamentals are undoubtedly best-in-class. Still, its total addressable market is so big that the company has room to grow many times in size. See it here.
As a social network, Snap generates revenue growth by increasing its user base and charging advertisers more for the ads each user is shown.
Over the last two years, Snap's daily active users, a key performance metric for the company, grew 16.9% annually to 406 million. This is solid growth for a consumer internet company.
In Q3, Snap added 43 million daily active users, translating into 11.8% year-on-year growth.
Key Takeaways from Snap's Q3 Results
With a market capitalization of $15.4 billion, a $3.61 billion cash balance, and positive free cash flow over the last 12 months, we're confident that Snap has the resources needed to pursue a high-growth business strategy.
We enjoyed seeing Snap exceed analysts' revenue expectations this quarter based on in line DAUs (daily active users) that grew. This was especially good after two straight quarters of negative revenue growth. Additionally, adjusted EBITDA beat meaningfully due to stronger cost efforts at Snap. The company did not provide formal Q4 guidance but instead, gave its internal forecasts for revenue and adjusted EBITDA--the former beat while the latter was below expectations. Overall, this quarter's results were mixed but better than some pretty bad results the company has reported in recent quarters. Investors were likely expecting more, however, and the stock is down 3.71% after reporting, trading at $9.35 per share.
So should you invest in Snap right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here.
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The author has no position in any of the stocks mentioned in this report.