Snap reported mixed first-quarter results, showing a return to global daily active user growth but delivering cautious sales guidance. The company’s shares fell after it revealed the amicable termination of its $400 million generative AI deal with Perplexity and cited “geopolitical uncertainty” in the Middle East as a potential headwind for its second-quarter outlook. Despite these challenges and recent layoffs, CEO Evan Spiegel emphasized improved financial metrics and a strategic shift towards an “AI-driven transformation.”
Snap (NYSE: SNAP) shares experienced a 4% decline in extended trading after the company delivered its first-quarter earnings report on Wednesday. While the social media giant revealed some positive user growth, its cautious sales guidance and the surprising termination of a key generative AI partnership left investors wary, compounded by lingering geopolitical uncertainties.
The company's performance against Wall Street expectations presented a mixed bag:
- Earnings per share: A loss of 5 cents. (Not directly comparable to analysts' estimates).
- Revenue: $1.53 billion, precisely meeting LSEG's analyst expectations.
- Global daily active users (DAU): 483 million, surpassing StreetAccount's estimate of 475.6 million.
- Global average revenue per user (ARPU): $3.17, slightly below StreetAccount's $3.20 projection.
Snap's first-quarter sales climbed 12% year-over-year, and its net loss significantly narrowed by 36% to $89 million from $139.6 million in the prior year. CEO Evan Spiegel highlighted these improvements, stating, "In Q1, we returned to growth in daily active users, accelerated revenue growth, expanded margins, and generated strong free cash flow."
However, the company acknowledged ongoing challenges. In its investor letter, Snap noted that "large advertisers in North America remained a headwind to advertising growth" in Q1, though it expressed cautious optimism about "encouraging signs that this part of the business is improving." The impressive 5% year-over-year growth in DAU was attributed to new product updates, including its popular Lenses digital filters and the Snap Map feature, a rebound after a prior quarter's decline linked to reduced marketing and Australia's social media minimum age act.
Looking ahead, Snap set its second-quarter sales guidance between $1.52 billion and $1.55 billion, with the midpoint aligning closely with analyst estimates of $1.54 billion. Crucially, this guidance "assumes no contribution from Perplexity as we amicably ended the relationship in Q1." This refers to the $400 million deal with generative AI startup Perplexity, announced in November, which Snap had previously expected to begin contributing revenue in 2026. Tech newsletter Sources was the first to report on the deal's collapse.
Adding another layer of caution, Snap's Q2 revenue guidance "assumes that the operating environment in the Middle East region remains consistent relative to the magnitude of the headwinds we have experienced in March and April," while also warning that "the trajectory of the geopolitical situation in the region is uncertain."
These developments follow Snap's announcement in April of significant internal restructuring, including laying off about 16% of its workforce and freezing 300 open positions, as it doubles down on an "AI-driven transformation."
In the broader social media landscape, competitors have shown varied results. Pinterest recently beat earnings expectations, though its finance chief Julia Donnelly noted that "large retailers remained a headwind to growth" due to tariffs. Reddit, meanwhile, soared with a 69% year-over-year revenue increase in its first-quarter earnings. Tech giants Meta and Alphabet also reported strong Q1 results, both surpassing sales estimates, but investors responded more favorably to Alphabet's AI spending plans, causing its stock to rise while Meta's saw a dip.
