On Friday, Snap stock surged by almost 30% in trading following the Snapchat parent company’s report of first-quarter earnings that exceeded expectations by a significant margin. With revenue growth of 21%, one analyst described it as a notable resurgence for the social media enterprise.
Snap, headquartered in Santa Monica, California, announced in its latest report released on Thursday that it achieved earnings of 3 cents per share on revenue amounting to $1.2 billion for the quarter ending in March. Analysts, on average, had anticipated Snap to report an adjusted loss of 5 cents per share on revenue of $1.12 billion, as per FactSet data.
Last year during the same period, Snap reported earnings of 1 cent per share on an adjusted basis, accompanied by sales totaling $988.6 million.
For the current quarter, Snap anticipates sales of $1.24 billion at the midpoint of its projected range. Prior to the report, analysts had estimated Snap’s sales for the June-ending quarter to reach $1.22 billion, as per FactSet.
On today’s stock market, Snap’s stock surged over 27% to conclude at 14.53.
Snap Revenue Accelerates Big Time
Snap’s revenue growth has experienced a significant uptick, marking a notable acceleration. In the December quarter, sales increased by 5% year over year, followed by another 5% growth in the September period. Previously, Snap had faced unfavorable comparisons to Meta Platforms due to its sluggish revenue growth, with Meta being the parent company of Facebook and Instagram.
Both Snap and Meta heavily rely on revenue from digital advertising. However, Snap’s recent performance indicates a rebound from the digital ad market downturn that began in 2022. Notably, its 21% growth in the March quarter marks the highest in two years.
In a shareholder letter, Snap executives expressed that revenue growth is outpacing previous expectations, attributing the improvement to enhancements in its advertising platform and increased demand for direct-response advertising. Direct-response ads, which prompt user interaction like clicking into a product page, have been a focal point for Snap’s growth strategy.
The letter also underscored the success of Snapchat+, a subscription offering providing exclusive app features for $3.99 per month. Paying users for Snapchat+ tripled year over year, reaching 9 million.
Moreover, Snapchat’s daily active users saw a 10% year-over-year increase, totaling 422 million, with an expectation to reach 431 million by June’s end.
Snap’s sales guidance for the June quarter, at the midpoint, indicates a roughly 16% year-over-year increase. However, the company acknowledges facing tougher comparisons and seasonal factors in the current quarter.
Wall Street Response For Snap Stock
Analysts generally increased their price targets for Snap after the report, with Jefferies’ James Heaney expressing confidence in the stock’s potential due to significant revenue growth and a strong Q2 revenue outlook. He upgraded his price target to $19 from $17, citing improvements in the ad platform and substantial spending growth by small and medium-sized businesses on Snapchat.
However, some analysts, like Stifel’s Mark Kelley and Oppenheimer’s Jason Helfstein, are more cautious. Kelley, while raising his price target to $13, maintained a neutral rating until Snap demonstrates a more consistent revenue trajectory. Helfstein also remained neutral, highlighting stagnant daily active users in key markets and weaker monetization in non-core regions.
Snap’s average revenue per user in North America stands at $7.44, significantly higher than in Europe ($2.04) and other regions ($1.13) as of the first quarter.
Snap Stock: Technical Ratings
Despite the surge on Friday, Snap still faces a substantial challenge in recovering. Its shares are down approximately 10% year-to-date and have plummeted more than 80% from their all-time high in September 2021.
Prior to the earnings report, Snap’s Composite Rating on IBD Stock Checkup stood at 31 out of a possible 99, which combines five distinct proprietary ratings into one. The most successful growth stocks typically boast a Composite Rating of 90 or higher.
However, Snap’s Relative Strength Rating on IBD was 25 out of 99, indicating significant underperformance compared to the broader market.
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