Snap Exceeds Estimates Across The Board And Reaches A Critical Milestone

Last Thursday, Snap's SNAP stock rose as much as 6% in after-hours trading after the company managed to beat Wall Street's expectations on its first-quarter earnings, revenue and user growth. The latest quarter's performance reflects still-strong revenue and user growth amid ad product improvements and heightened engagement during the pandemic but the social media company also forecasts 80% revenue rise in second-quarter as Covid curbs ease.

Q1 Figures

During the first quarter, revenues at Snap rose 66 per cent YoY to $770 million, beating analyst expectations of $742 million, enabling the social media company to get to an  unexpected breakeven in adjusted earnings per share, whereas a loss of 6 cents was expected. Daily active users reached 280 million, up 22 per cent YoY.

The company's upbeat results benefited from delays to privacy changes to Apple's AAPL iOS 14 operating system, which will ban app developers from collecting data on iPhone users without their explicit consent. The changes were expected to come into force towards the end of last year, but will now arrive next week and although Snap has explored ways to circumvent the rules, it is still not clear what the longer-term impact of the changes would be as this update is expected to be painful for the online ads industry. The company proudly stated its engagement has continued to hold up even as the economy reopens further.

Q2 Guidance

Snap's advertising sales are expected to pick back up in tandem with economic growth so it should benefit from the economy reopening. Revenue is estimated to be between $820 million and $840 million whereas the consensus is $826.99 million. Adjusted EBITDA is estimated to be in the range between a loss of $20 million and breakeven, compared to negative $96 million in the same quarter last year. Easing of coronavirus-related measures are expected to boost engagement, with users increasingly co-ordinating social activities and in larger groups.

The company guided YoY revenue growth of between 80 and 85 per cent in the second quarter after the pandemic squeezed Snap's advertising clients in the second quarter last year. A successful turnaround after a troubled 2019 with the right investments in product upgrades and offering to advertisers has paid off.

Snapchat Is Still Ahead Of Competitors

According to Wall Street firm Piper Sandler's semi-annual "Taking Stock with Teens" survey, Snap outpaced TikTok and Facebook-owned FB Instagram, remaining as the most popular social media platform among U.S. teens between mid-February and March this year. Snap also revealed on Thursday that more than 125 million users used its new Spotlight feature in March along with also noticing a rise in new friendships and bi-directional communication.

Outlook

Snap began the year by achieving its highest YoY revenue and daily active user growth rates in over three years during the quarter, and delivering positive free cash flow for the first time as a public company. The strength of the business underscores the company's continuous commitment to product innovation Daily active users increased between 17% and 22% YoY in every quarter last year, for growth rates well above those from 2019. Snap continued its growth path into 2021 as it expanded its user base by another 22% during the first three months of the year. April should be peak growth for the online media sector, so the key question is if positive estimate revisions will be enough to outweigh industry pressures, such as those posed by Apple's privacy changes.

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