Shares of Snap Inc. (NYSE: SNAP) stayed in green territory on Monday. The stock has dropped 50% over the past 12 months and 36% year to date. The company reported its first quarter 2022 earnings results last week, missing expectations on both the top and bottom line numbers. There is a mixed sentiment over this stock and here are a few points to keep in mind if you have an eye on it.
For the first quarter of 2022, Snap’s revenue increased 38% year-over-year to $1.06 billion but narrowly missed estimates. The company posted double-digit revenue growth across all its regions as well on a year-over-year basis. However, revenues decreased on a sequential basis across all geographies as supply chain disruptions and geopolitical concerns led to a drop in advertising. Total revenues were down 17% sequentially.
Snap’s slowing revenue growth rate is a cause of concern. From a growth of 66% in the first quarter of 2021, it has come down to 38% in Q1 2022. Looking into the second quarter of 2022, Snap expects the headwinds seen in Q1 related to supply chain, inflation and economy to continue. It also faces a tough comparison to Q2 2021 which saw revenue growth of 116%. The growth rate thus far in Q2 is around 30% YoY but the company expects challenges to continue and based on these factors, it expects total revenues for the second quarter to increase 20-25% YoY.
In Q1 2022, Snap’s daily active users (DAU) totaled 332 million, reflecting a year-over-year growth of 18%. Daily active users grew across all regions both on a YoY basis and sequential basis. The highest growth was seen in the Rest of World segment as the company continued to invest in local content and language support.
Snap’s user growth rate has also slowed down. After four quarters of YoY growth of 20% or more, in Q1, it rose only 18%. The company continues to invest in improving its offerings and adding features to attract new users and drive engagement. In Q1, over 250 million Snapchatters engaged with augmented reality every day on average.
Average revenue per user (ARPU) grew 17% globally on a YoY basis but declined sequentially. ARPU grew YoY across all regions with double-digit growth in North America and Europe but declined in all regions sequentially. For Q2 2022, Snap expects daily active users to be approx. 343-345 million.
During Q1, Snap saw a pause in advertising following the invasion of Ukraine by Russia. The company witnessed a slowdown in its direct response and brand advertising businesses brought on supply chain disruptions, inflationary pressures as well as economic and geopolitical concerns. Snap remains concerned that these challenges could lead to further pauses in advertising in Q2.
Despite this, there is opportunity ahead. Currently, Snap comprises less than 2% of the $210 billion US digital ad market and less than 1% of the $520 billion global digital ad market. In an environment where mobile and video advertising is growing faster than desktop advertising and non-video advertising, and self-serve advertising is expected to make up 90% of all digital display ad spend in 2022, the company believes its video advertising business has the potential to deliver strong top line growth.
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