Snap Inc Falls Short On Estimates For Its First Quarter, Blames Inflation And Other Challenges

Snap Inc. reported its first-quarter earnings results on Thursday with key margins such as profit, sales, and revenue growth falling short of expectations. Daily users, however, surpassed expectations – the company reported growth of 18 percent YoY. The company’s shares fell about 4 percent briefly before rebounding to more than 7 percent at some point in extended trading.

Snap reported a loss of 2 cents for earnings per share compared to expectations of 1 cent that analysts had forecasted, according to Refinitiv. For the quarter, revenue came in at $1.06 billion and fell short of analysts’ expectations of $1.07 billion, according to Refinitiv. Revenue was up 38 percent YoY. Operating cash flow was $127 million and Free Cash Flow was $106 million.

Global daily active users (DAUs), surpassed the expectations of analysts and was up 18 percent YoY. Snap Inc. reported DAUs of 332 million compared to the 330 million that analysts expected, according to StreetAccount. Average revenue per user, however, did not meet the expectations of analysts. The company reported $3.20 while analysts forecasted $3.25, according to StreetAccount. ARPU was up 16.8 percent YoY.

Snap Inc.’s CEO admitted that “the first quarter of 2022 proved more challenging than we had expected.” According to him, the challenges the company faced were caused by macroeconomic situations as well as advertisers who pulled the brakes on their campaigns after Russia invaded Ukraine back in February. The ongoing Russia-Ukraine saga had quite an impact on companies. Streaming platform Netflix which lost 200,000 subscribers in the first quarter blamed halting its services in Russia as one of the reasons for its losses.

For the second quarter, Snap expects revenue to rise between 20 to 25 percent which is lower than Wall Street’s estimate of 28 percent. Its expectation for daily users, however, surpasses estimates. It expects 344 million daily users while analysts expect 341.4 million. It also expects adjusted EBITDA to come in between breakeven and $50 million in the second quarter.

According to the company’s CFO Derek Anderson, other factors taking a toll on advertising include inflation, labor shortages, supply chain disruptions, rising interest rates, etc. He also added that the company could continue to face a challenging operating environment which will see customers either pause their campaigns or reduce advertising spending.

Apple’s privacy change which came in last year is also another challenge taking a toll on the company but CFO Derek Anderson said that the tool created by the company to tackle the issue now accounts for 90 percent of its direct response advertising revenue.

The company said that its net income would have improved 7 percent YoY if not for a $92 million unrealized loss related to an investment it made last year. This investment was, however, not mentioned.

“Our first-quarter results reflect the underlying momentum in our business through a challenging operating environment, as we grew our community 18% year-over-year to reach 332 million, and grew our revenue 38% year-over-year to reach $1.06 billion for the quarter. We remain focused on providing value for our growing community, delivering ROI for our advertising partners, and investing against our enormous opportunity in augmented reality. We’re excited to share many new products and services at our annual Snap Partner Summit next week,” CEO Evan Spiegel said in the company’s statement.

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