Key Takeaways

  • Snap reported adjusted EPS of -$0.08, below the -$0.07 analysts expected.
  • Revenue continued to grow, coming in higher than expected.
  • Snap's number of daily active users (DAU) also came in higher than expected, as user-base growth continues to accelerate.

What Happened

On 4/21/20, Snap reported that its user base growth continued to accelerate in Q1 2020. Snap's daily active users (DAU) had stalled out at the end of 2018 and into Q1 2019, before starting to grow again over the rest of 2019. Snap's revenue was higher than expected, while its adjusted EPS fell short of expectations. Investors seem pleased by the continued growth in DAU, as the stock is up 12.2% in aftermarket trading at time of writing.

(Below is Investopedia's original earnings preview, published 4/15/20)

What to Look for

Social networking company Snap Inc.(SNAP) saw its stock plunge dramatically earlier this year after missing revenue estimates and as the coronavirus pandemic pulled down the broader market. But in the past four weeks since March 18, Snap has posted a striking recovery, its shares rising more than 65% and far ahead of the market as of Tuesday afternoon trading. One driver may be a sharp increase in social networking and messaging by homebound consumers during the pandemic. Investors will be watching closely at how these and other trends are affecting Snap when it reports Q1 2020 results after market on April 21.

During that announcement, investors will focus on Snap's key metric of daily active users (DAUs), a barometer of growth that helps determine how much the company is able to charge for advertising. For Q1, analysts expect significant YOY gains in DAUs, as well as robust revenue growth and shrinking adjusted EPS losses YOY.

During the past 12 months Snap's shares have outperformed the market, rising 14.3% compared to the S&P 500's 4.9% decline as of the market's close on April 13.

SNAP_TradingView
Source: TradingView.

Snap posted its first quarterly profit in Q4 2019 after posting a long string of quarterly losses since going public in 2017. For Q1 2020, analysts once again expect Snap to swing back to a loss, an adjusted EPS of -$0.07. But that still is about 30% less than the adjusted EPS of -$0.10 posted in Q1 of 2019. Snap's worst quarter on a loss basis was Q1 2017, when it reported adjusted EPS of -$0.20.

Revenue is another story, as Snap has seen consistent revenue growth every quarter since going public. Analyst expectations of $433.6 million in revenue for Q1 2020 mark a 35.3% improvement YOY and nearly triple the figure from three years prior. However, this would also mark the smallest YOY quarterly revenue increase in at least three years. Revenue growth, for example, peaked during that period when it rose by 285.7% in Q1 2017 and then generally slowed over the next 3 years. In the most recent reported quarter, revenue rose by 43.9% YOY to $560.9 million in Q4 2019.

Snap Key Metrics
  Estimate for Q1 2020 Actual Q1 2019 Actual Q1 2018
Adjusted Earnings Per Share -$0.07 -$0.10 -$0.17
Revenue (in millions) $433.6 $320.4 $230.7
Daily Active Users (in millions) 224.3 190.0 191.0

Like other social media companies, a primary driver of Snap's stock and financial growth is its number of daily active users, called DAU. DAU measures the number of people who utilize a Snap app or visit the company's website each day. Another important related metric is average revenue per user (ARPU), which reflects the average revenue generated by each user of the site or app. Together, DAU and ARPU present a picture of both the size of Snap's user base and how successfully the company monetizes that base, primarily through advertising. Snap needs a high level of daily active users to attract advertising.

Snap's daily active users grew steadily on a sequential basis from the company's 2017 IPO through Q1 2018, when it reached 191 million users. DAUs fell to 188 million in Q2 2018 and stayed around that level for the next two quarters. DAUs recovered in 2019, growing steadily from quarter to quarter all year, climbing above 200 million for the first time in Q2. In the most recent 3 quarters, the DAU growth rates have sharply accelerated YOY from 8.0% in Q2 2019 to 12.9% in Q3 2019 to 17.2% in Q4 2019. Analyst expectations of 224.3 million DAUs for Q1 2020 would mark an 18.0% YOY increase, the fastest growth since Q4 2017.

Average revenue per user also increased through the end of 2018 and then slumped. It fell in the first half of 2019 before rebounding in the second half of the year. The outlook, though, is mixed for Q1. On a sequential basis, analysts estimate that ARPU will fall 23% from Q4 2019 to Q1 2020. But on a YOY basis, they expect ARPU to rise 13.9%. To put that in perspective, estimated Q1 YOY growth rate marks a dramatic downshift from 2019 and the slowest quarterly gain at least since Q1 of 2017.