Snap Skyrockets on Blowout Earnings as User Growth Impresses

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Social media company Snap (NYSE: SNAP) reported blockbuster second quarter results on Thursday evening, which showed a surge in revenue driven by strong user growth.

The advertising industry had pulled back significantly a year ago near the beginning of the pandemic, which is now creating favorable comparisons for advertising-based companies.

As of 11 a.m. EDT, shares in the Snapchat parent were up 20%.

Ad budgets bounce back

Revenue in the second quarter soared by 116% to $982 million, utterly crushing the consensus estimate of $846.6 million in sales. Snap added 13 million daily active users (DAUs) during the quarter, bringing its global user base to 293 million DAUs.

Most of the DAU gains are coming from emerging markets in the company’s Rest of World segment, while user growth in North America and Europe were more modest.

On the monetization front, Snap improved average revenue per user (ARPU) across all of its geographical segments. 

Segment ARPU (Q2’ 21) YOY Growth
North America $7.37 116%
Europe $1.95 76%
Rest of World $1.07 20%
Global $3.35 76%
Data source: Snap.

“Our second quarter results reflect the broad-based strength of our business, as we grew both revenue and daily active users at the highest rates we have achieved in the past four years,” CEO Evan Spiegel commented in a release. “We are pleased by the progress our team is making with the development of our augmented reality platform, and we are energized by the many opportunities to grow our community and business around the world.”

Adjusted gross margin also expanded to 55% as Snap kept costs in check. The company was among the first large technology companies to completely outsource its cloud infrastructure to third-party providers, and hosting costs have remained stable.

Despite using a capital-light model associated with relying on other companies for cloud infrastructure, free cash flow was negative $116 million.

Snap continues to innovate on augmented reality (AR), unveiling the latest fourth-generation version of its Spectacles wearable in May. Previous models allowed users to capture Snaps, but the latest Spectacles will actually overlay content in true AR fashion, integrating the platform’s Lens Studio.

That all resulted in adjusted earnings per share of $0.10, while Wall Street analysts were expecting Snap to lose $0.01 per share on a non-GAAP basis. Adjusted EBITDA was $117 million.

A rosy outlook despite COVID-19 uncertainties

Guidance was also strong, with Snap forecasting revenue in the third quarter to grow by 58% to 60% to reach $1.07 billion to $1.09 billion.

That outlook is comfortably ahead of the $1.01 billion in sales that analysts are looking for. Adjusted EBITDA is expected to be in the range of $100 million to $120 million.

“As we look forward to Q3, we are observing a resurgence of COVID-19 cases and the ongoing impact of the pandemic around the world, which continues to present an uncertain operating environment,” CFO Derek Andersen added on the conference call with analysts. “We currently estimate that DAU will grow at a rate of approximately 21% year-over-year to reach approximately 301 million in Q3.”

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