Social network Snapchat (NYSE: SNAP) reported results ahead of analysts' expectations in Q1 CY2024, with revenue up 20.9% year on year to $1.19 billion. Guidance for next quarter's revenue was also optimistic at $1.24 billion at the midpoint, 2.1% above analysts' estimates. It made a non-GAAP profit of $0.03 per share, improving from its profit of $0.01 per share in the same quarter last year.
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Snap (SNAP) Q1 CY2024 Highlights:
- Revenue: $1.19 billion vs analyst estimates of $1.12 billion (6.6% beat)
- EPS (non-GAAP): $0.03 vs analyst estimates of -$0.05 ($0.08 beat)
- Revenue Guidance for Q2 CY2024 is $1.24 billion at the midpoint, above analyst estimates of $1.21 billion
- Gross Margin (GAAP): 51.9%, down from 55.5% in the same quarter last year
- Free Cash Flow of $37.9 million, down 65.8% from the previous quarter
- Daily Active Users: 422 million, up 39 million year on year
- Market Capitalization: $18.29 billion
“The value we provide our community and advertising partners has translated into improved financial performance,” 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.
Social Networking
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 strong, averaging 24.4% annually. This quarter, Snap beat analysts' estimates and reported decent 20.9% year-on-year revenue growth.
Guidance for the next quarter indicates Snap is expecting revenue to grow 16.1% year on year to $1.24 billion, improving from the 3.9% year-on-year decline it recorded in the comparable quarter last year. Ahead of the earnings results, analysts were projecting sales to grow 11.6% 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 14.6% annually to 422 million. This is solid growth for a consumer internet company.
In Q1, Snap added 39 million daily active users, translating into 10.2% year-on-year growth.
Revenue Per User
Average revenue per user (ARPU) is a critical metric to track for consumer internet businesses like Snap because it measures how much the company earns from the ads shown to its users. ARPU can also be a proxy for how valuable advertisers find Snap's audience and its ad-targeting capabilities.
Snap's ARPU has declined over the last two years, averaging 8.4%. Although the company's users have continued to grow, it's lost its pricing power and will have to make improvements soon. This quarter, ARPU grew 9.7% year on year to $2.83 per user.
Key Takeaways from Snap's Q1 Results
We enjoyed seeing Snap exceed analysts' revenue expectations this quarter, driven by better-than-expected daily active users. Its revenue growth and higher operational efficiency also enabled it to post positive EBITDA and free cash flow, beating Wall Street's pessimistic estimates.
The company noted strong momentum in its Snap Star program, which seeks to bring social media influencers into its platform to drive engagement. This helped contribute to a tripling of Snapchat+ subscribers and 125% year-on-year growth in total time spent watching Snapchat Spotlight content. The number of small- and medium-sized businesses advertising on Snapchat also grew 85% year on year.
Lastly, next quarter's revenue, EBITDA, and daily active users guidance surpassed estimates. It expects to have 431 million daily active users.
Overall, we think this was a strong quarter that should satisfy shareholders. The stock is up 24.6% after reporting and currently trades at $14.2 per share.
Snap may have had a good quarter, but does that mean you should invest 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, it's free.