Snap Misses Q1 Earnings Expectations, Daily Users Hit 332 Million as Growth Slows

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Snap, the parent company of Snapchat, fell just short of Wall Street forecasts for the first quarter of 2022 — and its net loss increased by 25% — with CEO Evan Spiegel citing a “challenging operating environment.”

The messaging and media app company gained 13 million average Snapchat daily active users worldwide for the period, to stand at 332 million — exceeding its previous expectations of hitting 328 million-330 million average DAUs. At the same time, Snapchat’s year-over-year user growth rate was 18% for Q1, a slowdown versus 22% in the year-prior quarter and 20% for Q4 2021.

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In addition, of the 13 million net new DAUs, 10 million were outside its core North America and Europe markets. In North America, Snapchat average DAUs grew by 5% year-over-year to reach 98 million and in Europe grew by 10% to reach 84 million.

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“The first quarter of 2022 proved more challenging than we had expected, and our team was able to make significant progress against our goals despite increased volatility in the operating environment,” Spiegel said in prepared remarks.

For Q1, Snap’s revenue rose 38% to $1.063 billion, versus 66% growth in the year-ago quarter. Net loss came in at $360 million, an increase of 25% compared with $287 million in the prior-year quarter. The company reported an adjusted net loss of 2 cents per share. Wall Street analysts on average had expected Snap to post revenue of $1.07 billion and adjusted EPS of 1 cent, per financial data provider Refinitiv.

The Q1 net loss included a $92 million unrealized loss on Snap’s investment in an unidentified company that went public in 2021. Excluding that, net income would have improved by 7%, or $19 million, to negative $267 million, CFO Derek Andersen said on the earnings call.

Snap’s stock swung between positive and negative territory in after-hours trading Thursday, eventually landing between +1% and -1%. Shares closed down 4.4% in regular trading and have declined 37% year-to-date.

Spiegel, on the earnings call, touted Snap’s free cash flow of $106 million for Q1, marking its third quarter of positive free cash flow. “While we are pleased with our progress given the macroeconomic environment, we also recognize that we have a significant amount of work to do to realize our long-term opportunity, and we believe we are well positioned to invest through the turbulence,” he told investors.

Snap saw a “broad-based” slowdown in the rate of ad sales growth during Q1 after Russia’s invasion of Ukraine, Andersen said. Macroeconomic headwinds that caused the revenue declaration in Q1 included “supply chain disruptions, labor shortages, inflationary pressures and the impact of rising interest rates” — which “remain challenges as we enter Q2,” Andersen said. He added that “we are concerned that the operating environment ahead could be even more challenging, leading to further campaign pauses or advertiser budget reductions.”

Also cramping Snap revenue was the ongoing impact of Apple’s iOS privacy update that requires double opt-in from users to allow ad tracking. On the call, chief business officer Jeremi Gorman said, “We continued to work through platform policy changes, which are primarily impacting direct-response advertising partners.”

Snap had reported its first-ever net profit for Q4 2021, managing to earn $22.6 million after years of red ink. For the second quarter, Snap expects revenue growth to be between 20% and 25% with adjusted EBITDA forecast to be between breakeven and $50 million.

On the content front, Snap reported that total time spent with Spotlight, its TikTok-style user generated content section, grew 230% year-over-year in Q1. The company said six Discover media partners reached over 100 million global viewers each in the quarter (it didn’t identify them) and that more than 10 million viewers have watched “Breakwater,” its new original series about a dystopian future caused by climate change that featured episodic AR Lenses sponsored by Verizon.

Next Thursday (April 28), the company is hosting its annual Snap Partner Summit, where it expects to announce several new products and services.

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