Snap’s stock dramatically rose by 10% following a robust second-quarter earnings report and an optimistic sales forecast, signaling a strong recovery for its advertising business. CEO Evan Spiegel highlighted improved momentum with large advertisers and international growth, despite a decline in North American daily active users and increased infrastructure costs for AI investments. The company’s performance provides a counter-narrative to recent struggles faced by other online ad platforms like Reddit and Meta.
Shares of Snap surged by approximately 10% in extended trading after the social media giant announced better-than-expected second-quarter revenue and earnings, alongside an encouraging sales forecast for the current period that surpassed analyst estimates. The impressive performance suggests a potential turnaround for its advertising business amidst a challenging market.
Key Financial Highlights from Q2:
- Loss per share: Recorded a loss of 10 cents per share.
- Revenue: Achieved $1.6 billion, outperforming LSEG's expectation of $1.54 billion.
- Global daily active users (DAU): Reached 493 million, exceeding StreetAccount's projection of 487 million.
- Global average revenue per user (ARPU): Stood at $3.25, higher than StreetAccount's anticipated $3.16.
Snap's Q2 revenue marked a 19% increase year-over-year from $1.34 billion, while the company significantly narrowed its net loss to $164 million, compared to $262.6 million (or 16 cents per share) in the same period last year. Adjusted earnings were also robust at $250 million, comfortably beating StreetAccount's estimate of $192 million.
Looking ahead, Snap projects third-quarter sales to be in the range of $1.7 billion to $1.74 billion, topping analyst expectations of $1.7 billion. Adjusted earnings are anticipated to fall between $300 million and $350 million, though the midpoint of $325 million slightly trails StreetAccount's projection of $327 million.
CEO Evan Spiegel expressed optimism in an investor letter, stating the company "saw improving momentum in our advertising business." He elaborated, "After several quarters of improving our ad products and go-to-market approach, we saw better momentum with large advertisers in North America and stronger revenue growth internationally." Spiegel also noted a boost from spending related to the World Cup.
While global daily active users increased by 5% year-over-year, North American DAU saw a 7% decline to 92 million, remaining flat compared to the first quarter. On the earnings call, Spiegel attributed overall user growth to "progress in strengthening the core communication experience" and the success of newer offerings like its Spotlight short-video feature.
The company lifted its full-year guidance for infrastructure costs by $50 million, now estimating them to be between $1.65 billion and $1.7 billion. This increase reflects "additional investment in the AI and machine learning infrastructure needed to support revenue growth."
Snap's other revenue streams, including the Snapchat+ subscription service, demonstrated significant growth, surging 85% year-over-year to $316 million in the second quarter.
Earlier in June, Snap unveiled its first augmented reality glasses, "Specs," designed for the broader public, not just developers. Priced at $2,195 with a $200 refundable deposit, these AR glasses are expected to ship later this year. Spiegel emphasized a "disciplined" approach to this investment, focusing on "the customer experience, the product quality and the ecosystem development." He acknowledged that while cutting-edge AR glasses represent "a natural form factor for the future," mass-market consumer adoption is likely "towards the end of the decade," contingent on reductions in weight and cost.
Wall Street has been particularly harsh on other online advertising companies recently. Reddit, for instance, reported a Q2 beat but saw its shares tumble due to "choppy" search-referral traffic and investor concerns about user growth. Similarly, Meta experienced a drop in its stock price after issuing a weaker-than-expected sales forecast and reporting dwindling free cash flow, attributed to substantial investments in AI-related expenditures.
VIDEO: Snap CEO Evan Spiegel on new AR Specs: New opportunity to bring computing to the world around you
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