Social network Snapchat (NYSE: SNAP) reported results in line with analysts' expectations in Q2 FY2023, with revenue down 3.89% year on year to $1.07 billion. However, next quarter's revenue guidance of $1.1 billion was less impressive, coming in 2.84% below analysts' estimates. Adjusted EBITDA guidance for next quarter was well below expectations. Snap made a GAAP loss of $377.3 million, improving from its loss of $422.1 million in the same quarter last year.
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Snap (SNAP) Q2 FY2023 Highlights:
- Revenue: $1.07 billion vs analyst estimates of $1.06 billion (small beat)
- EPS (non-GAAP): -$0.02 vs analyst estimates of -$0.04 ($0.02 beat)
- Revenue guidance for Q3 2023 is $1.1 billion at the midpoint, below analyst estimates of $1.13 billion
- Free cash flow was -$119 million, down from $103.5 million in the previous quarter
- Gross Margin (GAAP): 53.5%, down from 59.8% in the same quarter last year
- Daily Active Users: 397 million, up 50 million year on year
“We are excited by the progress we have made delivering increased return on investment for our advertising partners, growing our community to 397 million daily active users, and reaching more than 4 million Snapchat+ subscribers,” said Evan Spiegel, CEO. However, he added that "our business remains in a period of rapid transition as we work to improve our advertising platform, while forward visibility of advertising demand remains limited."
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 very strong, averaging 36.9% annually. This quarter, Snap reported a year on year revenue decline of 3.89%, in line with analysts' estimates.
Snap is expecting next quarter's revenue to decline 2.52% year on year to $1.1 billion, a reversal of the 5.71% 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 8.22% over the next 12 months.
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Usage Growth
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 18.3% annually to 397 million. This is solid growth for a consumer internet company.
In Q2, Snap added 50 million daily active users, translating into 14.4% year-on-year growth.
Key Takeaways from Snap's Q2 Results
With a market capitalization of $20.4 billion, a $3.69 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.
The company mentioned that "our business remains in a period of rapid transition as we work to improve our advertising platform, while forward visibility of advertising demand remains limited" and guided to adjusted EBITDA well below expectations. Additionally, Snap's weak revenue growth was troubling and next quarter's revenue guidance also missed Wall Street's expectations. On the other hand, it was good to see Snap's solid user growth this quarter, which was one of the few bright spots. Overall, this was a mixed but overall negative quarter for Snap. The company is down 16.2% on the results and currently trades at $10.48 per share.
Snap may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, and what's happened in the latest quarter. We cover this and more in our full company report, and it's free.
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The author has no position in any of the stocks mentioned in this report.