- Analysts estimate adjusted EPS of $0.04 vs. $0.09 in Q2 FY 2021.
- The number of average daily active users is expected to rise YOY, but at the slowest rate in more than two years.
- Revenue is expected to rise, but at the slowest pace in at least 14 quarters.
Snap Inc. (SNAP) saw tremendous quarterly earnings and revenue growth throughout most of 2020 and 2021 amid the global pandemic. That's changing. Snap, which depends heavily on advertising, is now experiencing sharply slowing growth in revenue and a likely slowdown in advertising as the economy slows. Snap also is facing increased pressure from regulators. In late June, a California state senate committee advanced a bill that - if made law - would allow state government attorneys to sue social media companies like Snap for features that allegedly harm children.
Investors will be watching to see how Snap navigates these and other challenges when it reports earnings on July 21, 2022 for Q2 FY 2022. Analysts expect that Snap will post adjusted earnings per share (EPS) that drops significantly year-over-year (YOY), as well as the slowest quarterly revenue growth in more than three years.
Investors will also focus on Snap’s daily active users (DAUs), a key metric indicating the size of the company’s total user base. Snap needs to grow its user base to attract more ad spending from advertisers. Analysts expect the company's average DAUs to increase at the slowest pace in more than two years.
Snap shares outperformed the market for much of the summer and early fall 2021. However, they fell sharply surrounding the company's Q3 FY 2021 earnings release in October and have trailed the broader market since then. Since October, Snap shares have generally trended downward, although they saw a small boost around the Q4 FY 2021 earnings release in February 2022. Since late May, shares have traded sideways. As of July 20, Snap shares have provided a 1-year trailing total return of -76.3%, well below the S&P 500's return of -7.6%.
Snap Earnings History
Snap has struggled to maintain consistent profitability throughout much of its history. Snap reported adjusted losses per share in five out of eight quarters in FY 2019 and FY 2020. However, the company posted six straight quarters of adjusted EPS from Q3 FY 2020 through Q4 FY 2021. This trend reversed in Q1 FY 2022 when Snap posted a loss. For Q2, analysts expect the company to report positive EPS of $0.04 per share, a 57.1% decline from the same quarter a year earlier.
By contrast, Snap's has generally posted robust revenue growth in each quarter for at least the last 14 quarters. During FY 2021, growth ranged from a high of 116.3% in Q2 to a low of 42.4% in Q4. In Q1 FY 2022, the pace slowed to 38.1%. For Q2, analysts expect growth to slow drastically, rising by only 16.5% YOY, the slowest pace since at least Q1 FY 2019.
|Snap Key Stats|
|Estimate for Q2 FY 2022||Q2 FY 2021||Q2 FY 2020|
|Adjusted Earnings Per Share ($)||0.04||0.09||-0.09|
|Average Daily Active Users (M)||344.1||293.0||238.0|
Source: Visible Alpha
The Key Metric
As mentioned above, investors will also focus on Snap’s DAUs, which are defined as any registered Snapchat user who opens the Snapchat app at least once during a 24-hour period. Average DAUs for any specific quarter are calculated by summing the number of DAUs on each day of that quarter and dividing the total by the number of days in the quarter. The metric provides a snapshot of the size of Snap’s total user base. Snap generates the majority of its revenue through selling ad space to advertisers. The bigger the user base, the more attractive Snap’s platform is to potential advertisers. But to create an attractive platform for users, Snap must continually invest in providing more engaging features than its competitors.
Snap's DAUs grew substantially throughout the pandemic as more people turned to online and social media forms of entertainment. DAUs climbed from 203.0 million in Q2 FY 2019 to 238.0 million in Q2 FY 2020, then to 293.0 million in Q2 FY 2021. Snap surpassed 300 million DAUs for the first time in Q3 FY 2021 and reached a high of 332.0 million in the most recent quarter, Q1 FY 2022. Analysts predict a new high of 344.1 million DAUs for Q2 FY 2022. While this number is impressive, Snap's pace of growth is slowing markedly. The company's DAU growth rate reached a recent peak of 23.1% YOY in Q2 FY 2021. But the pace slowed to 20.4% in Q4 FY 2021 and to 18.6% YOY in Q1 FY 2022. Now, analysts expect a DAU growth rate of 17.4% in Q2 FY 2022, the slowest pace of growth in two years.
Visible Alpha. "Financial Data."
- Bloomberg. "Social Media Stocks Sink to Erase $135 Billion on Snap Warning."
Visible Alpha. "Financial Data."
CNBC. "Global chip shortage is not over and the slowdown is ‘going to bite,’ analyst says."
Wall Street Journal. "Meta, TikTok Could Face Civil Liability if Held to Addict Children in California."
Snap Inc. "Snap Inc. Q2 2022 Earnings."
Snap Inc. "Form 10-K for the fiscal year ended December 31, 2021," Page 5.