SNAP Q1 Earnings Beat Estimates, User Growth Aids Top Line

Snap SNAP reported break-even earnings for first-quarter 2021, beating the Zacks Consensus Estimate of loss of 6 cents per share. The company had reported adjusted loss of 8 cents per share in the year-ago quarter.

Revenues jumped 75.2% from the year-ago quarter to $769.6 million, beating the consensus mark by 4.1%.

Daily active users (DAU) at the end of the reported quarter were 280 million. Snap added 51 million DAU on a year-over-year basis and 15 million, sequentially. This growth was broad based with year-over-year and sequential growth. Growth on Android platform exceeded iOS growth.

Geographically, revenues from North America (71.9% of revenues) soared 75.2% year over year to $553 million. Revenues from Europe (14.8%) jumped 48.5% to $113.6 million. Rest of the World (ROW) revenues were $103 million, up 46.4% year over year.

Average revenue per user (ARPU) increased 35.6% year over year to $2.74. On a year-over-year basis, North America and Europe ARPUs increased 66.4% and 35.8%, respectively while ROW declined 7%.

Snap’s first-quarter 2021 top-line growth benefited from increasing ARPU and user base growth.

User Engagement Improves in Q1

North America DAU increased 1 million sequentially to 93 million, up 5 million year over year. Europe DAU was 77 million, which increased 7 million on a year-over-year basis and 3 million on a sequential basis. ROW DAU was 111 million at the end of the reported quarter, up 30 million year over year and 10 million sequentially.

Snap is benefiting from improved user engagement. Notably, in March, over 125 million Snapchatters used Spotlight, its newest platform presenting the most entertaining Snaps from its community.

During the reported quarter, Snap launched Spotlight in three new countries — India, Mexico, and Brazil — making it live in a total of 14 countries.

Besides, over 75 million Snapchatters watched beauty-related content each month on Discover in first-quarter 2021. Markedly, the company launched a record 321 new channels during the quarter with over 150 partners from 12 countries.

Moreover, Snap We launched the company’s first local market Snap Original, “Phone Swap”, in India in the first quarter of 2021.

Camera and Augmented Reality (AR) Platform Gains Traction in Q1

Markedly, the number of Snapchatters engaging daily with its augmented reality Lenses grew more than 40% year over year in first-quarter 2021.

During the quarter, the company released Lens Studio 3.4 with improved capabilities around hand tracking, 3D multi-body tracking, and full body segmentation and a new asset library of 3D models, materials and scripts to help creators build Lenses.

On average, Lenses created by Snapchat community via Lens Studio accounted for more than 50% of daily Lens views.

In the first quarter, while Lunar New Year Lenses reached over 125 million users, over 260 million Snapchatters engaged with Valentine’s Day Lenses over a two-week period.

Further, the company partnered with Gucci to launch the first sponsored LiDAR Lens, which projected a 3D camping site around the user to promote the The North Face x Gucci collaboration.

Additionally, the company partnered with American Eagle to launch a sponsored Lens which displayed different types of American Eagle jeans in AR and included specific fits, washes, and the option to click to purchase.

Moreover, Snap partnered with fitness company, Sweat to launch a full body Lens to track body movement while exercising in order to recommend optimal form to Snapchatters.

Notably, Snap announced a partnership with Samsung, which will feature popular Snapchat Lenses in the native camera application on select new smartphones.

In addition to AR and content, Snap is also building new ways to empower creators, developers, brands, and others to improve the entire Snapchat experience.

In the first quarter of 2021, Snap announced a partnership with newspaper publisher Gannett to promote advertising solutions to the company’s network of more than 100,000 small business advertisers across the United States and Canada.

In March, the company acquired Fit Analytics, a sizing technology company that powers solutions for retailers and brands.

Moreover, Snap launched the largest Camera Kit integration to date with Moj, a leading short-video platform in India, giving Moj creators access to Snapchat’s Lens Carousel directly inside the Moj app.

Besides, the company launched Crazy Run in February as part of a multi-title partnership with game developer, Gismart, and the game has already reached 7 million players.

Operating Details

In the quarter under review, the cost of revenues on a non-GAAP basis increased 64.2% year over year to $404 million. Infrastructure costs, content & developer partner costs, and advertising partner & other expense increased 6.7%, 280.9% and 41.7%, respectively, on a year-over-year basis.

Gross margin on a non-GAAP basis remained flat year over year at 47%.

Operating expenses were $367 million, up 23.2% year over year. Sales and marketing expenses increased 21.5% year over year to $113 million while general and administrative expenses increased 4.9% year over year to $107 million. Research and development expenses rose 42.7% year over year to $147 million

Adjusted EBITDA loss was $1.7 million compared with loss of $81.2 million in the year-ago quarter.

Balance Sheet and Cash Flow

As of Mar 31, 2021, cash and cash equivalents and marketable securities were $2.55 billion, compared with $2.53 billion as on Dec 31, 2020.

Net cash provided by operating activities was $136.8 million compared with $6.28 million in the year-ago quarter and $52.5 million cash used in the previous quarter.

Free cash flow was $126.03 million against outflow of $4.6 million reported in the year-ago quarter and outflow of $68.9 million in the previous quarter.

Guidance

For the second quarter of 2021, revenues are expected between $820 million and $840 million. Negative adjusted EBITDA is estimated to be between $20 million and breakeven.

Zacks Rank & Stocks to Consider

Snap currently has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Advanced Micro Devices AMD, Avnet AVT and CGI Group GIB. All the three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Advanced Micro Devices is set to report its first-quarter earnings on Apr 27, while both Avnet and CGI are scheduled to report the same on Apr 28.

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