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SNAP Q3 Earnings Decline Y/Y, Low Ad Demand Dulls Prospects
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Snap (SNAP - Free Report) reported earnings of 8 cents per share for third-quarter 2022. Earnings declined 52.9% year over year. The Zacks Consensus Estimate was pegged at breakeven earnings.
Revenues increased 5.7% from the year-ago quarter’s levels to $1.12 billion but missed the Zacks Consensus Estimate by 1.55%.
Snap’s third-quarter 2022 top line benefited from user base expansion, despite slow revenue growth.
The company’s revenue growth continued to decelerate in Q3 due to a number of factors, including platform policy changes, macroeconomic headwinds, and increased competition. Advertising partners across many industries are decreasing their marketing budgets, especially in the face of operating environment headwinds, inflation-driven cost pressure, and rising costs of capital. In many high-growth sectors, businesses are reassessing investment levels amid the rising cost of capital, which led to cutbacks in spending on advertising.
Daily active users (DAU) at the end of the reported quarter were 363 million, up 18.6% year over year. Snap added 57 million DAU on a year-over-year basis.
Geographically, revenues from North America (71.9% of revenues) increased 3.1% year over year to $811.6 million. Revenues from Europe (14.3%) increased 5.4% to $161.4 million. Rest of the World (“ROW”) revenues were $155.5 million, up 22% year over year.
The average revenue per user (“ARPU”) decreased 10.9% year over year to $3.11. On a year-over-year basis, North America and Europe ARPUs decreased 0.9% and 4.7%, respectively, while ROW declined 9.2%.
North America DAU was 100 million, up 4.2% year over year. Europe DAU was 88 million, up 10% year over year. ROW DAU was 175 million at the end of the reported quarter, up 34.6% year over year.
Snap is benefiting from improved user engagement. The company stated that it reaches more than 75% of 13 to 34-year-olds in over 20 countries, representing above 50% of global advertising spend.
The Snapchat+ subscription service, with exclusive, experimental, and pre-release features, reached more than 1.5 million paying subscribers in Q3 and is now offered in 170 plus countries.
In Q3, overall time spent watching content globally grew on a year-over-year basis, driven primarily by growth in total time spent watching content on Discover and Spotlight. Total time spent watching Spotlight content grew 55% year over year and Spotlight monthly active users exceeded 300 million in Q3.
The daily average number of Snapchatters, aged 35 and older, engaging with shows and publisher content, increased more than 40% year over year.
In the third quarter, more than 250 million people engaged with augmented reality every day. The company partnered with Microsoft to incorporate Camera Kit into Flip, their video-sharing platform. Camera Kit immediately up-leveled Flip’s AR capabilities by providing its community with new tools for creativity, expression, and education.
Operating Details
In the quarter under review, the cost of revenues on a non-GAAP basis increased 4% year over year to $ 446 million.
Adjusted gross margin was 61% in the third quarter, compared with 60% in the year-ago period.
In third-quarter 2022, adjusted operating expenses were $610 million, up 32% year over year, reflecting Snap’s ongoing rate of investment in the business.
Sales and marketing expenses increased 23.1% year over year to $192 million, while general and administrative expenses increased 37% year over year to $174 million. Research and development expenses rose 34.1% year over year to $244 million.
Total employee-related costs were up 31% year over year, driven by year-over-year growth in average headcount.
Adjusted EBITDA was $72.6 million, down 58.3% from the year-ago quarter.
Balance Sheet and Cash Flow
As of Sep 30, 2022, cash and cash equivalents and marketable securities were $4.4 billion compared with $4.9 billion as of Jun 30, 2022.
Operating cash flow was $56 million in the third quarter compared with cash flow of $72 million in the year-ago quarter.
Free cash outflow was $18 million in the third quarter of 2022 compared with $52 million in the year-ago quarter.
Zacks Rank & Other Stocks to Consider
Snap currently carries a Zacks Rank #2 (Buy). Snap’s shares tumbled 77% compared with the Zacks Computer and Technology sector’s decline of 36% in the year-to-date period.
Image: Bigstock
SNAP Q3 Earnings Decline Y/Y, Low Ad Demand Dulls Prospects
Snap (SNAP - Free Report) reported earnings of 8 cents per share for third-quarter 2022. Earnings declined 52.9% year over year. The Zacks Consensus Estimate was pegged at breakeven earnings.
Revenues increased 5.7% from the year-ago quarter’s levels to $1.12 billion but missed the Zacks Consensus Estimate by 1.55%.
Snap’s third-quarter 2022 top line benefited from user base expansion, despite slow revenue growth.
The company’s revenue growth continued to decelerate in Q3 due to a number of factors, including platform policy changes, macroeconomic headwinds, and increased competition. Advertising partners across many industries are decreasing their marketing budgets, especially in the face of operating environment headwinds, inflation-driven cost pressure, and rising costs of capital. In many high-growth sectors, businesses are reassessing investment levels amid the rising cost of capital, which led to cutbacks in spending on advertising.
Daily active users (DAU) at the end of the reported quarter were 363 million, up 18.6% year over year. Snap added 57 million DAU on a year-over-year basis.
Geographically, revenues from North America (71.9% of revenues) increased 3.1% year over year to $811.6 million. Revenues from Europe (14.3%) increased 5.4% to $161.4 million. Rest of the World (“ROW”) revenues were $155.5 million, up 22% year over year.
The average revenue per user (“ARPU”) decreased 10.9% year over year to $3.11. On a year-over-year basis, North America and Europe ARPUs decreased 0.9% and 4.7%, respectively, while ROW declined 9.2%.
Snap Inc. Price, Consensus and EPS Surprise
Snap Inc. price-consensus-eps-surprise-chart | Snap Inc. Quote
User Engagement Improves in the Third Quarter
North America DAU was 100 million, up 4.2% year over year. Europe DAU was 88 million, up 10% year over year. ROW DAU was 175 million at the end of the reported quarter, up 34.6% year over year.
Snap is benefiting from improved user engagement. The company stated that it reaches more than 75% of 13 to 34-year-olds in over 20 countries, representing above 50% of global advertising spend.
The Snapchat+ subscription service, with exclusive, experimental, and pre-release features, reached more than 1.5 million paying subscribers in Q3 and is now offered in 170 plus countries.
In Q3, overall time spent watching content globally grew on a year-over-year basis, driven primarily by growth in total time spent watching content on Discover and Spotlight. Total time spent watching Spotlight content grew 55% year over year and Spotlight monthly active users exceeded 300 million in Q3.
The daily average number of Snapchatters, aged 35 and older, engaging with shows and publisher content, increased more than 40% year over year.
In the third quarter, more than 250 million people engaged with augmented reality every day. The company partnered with Microsoft to incorporate Camera Kit into Flip, their video-sharing platform. Camera Kit immediately up-leveled Flip’s AR capabilities by providing its community with new tools for creativity, expression, and education.
Operating Details
In the quarter under review, the cost of revenues on a non-GAAP basis increased 4% year over year to $ 446 million.
Adjusted gross margin was 61% in the third quarter, compared with 60% in the year-ago period.
In third-quarter 2022, adjusted operating expenses were $610 million, up 32% year over year, reflecting Snap’s ongoing rate of investment in the business.
Sales and marketing expenses increased 23.1% year over year to $192 million, while general and administrative expenses increased 37% year over year to $174 million. Research and development expenses rose 34.1% year over year to $244 million.
Total employee-related costs were up 31% year over year, driven by year-over-year growth in average headcount.
Adjusted EBITDA was $72.6 million, down 58.3% from the year-ago quarter.
Balance Sheet and Cash Flow
As of Sep 30, 2022, cash and cash equivalents and marketable securities were $4.4 billion compared with $4.9 billion as of Jun 30, 2022.
Operating cash flow was $56 million in the third quarter compared with cash flow of $72 million in the year-ago quarter.
Free cash outflow was $18 million in the third quarter of 2022 compared with $52 million in the year-ago quarter.
Zacks Rank & Other Stocks to Consider
Snap currently carries a Zacks Rank #2 (Buy). Snap’s shares tumbled 77% compared with the Zacks Computer and Technology sector’s decline of 36% in the year-to-date period.
Investors interested in the broader Zacks Computer & Technology sector can consider other top-ranked stocks like Asure Software (ASUR - Free Report) , Aspen Technology (AZPN - Free Report) and Amdocs (DOX - Free Report) , each carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Asure Software has lost 14% in the year-to-date period. The long-term earnings growth rate for ASUR is currently projected at 32.8%.
Aspen Technology has returned 62.4% in the year-to-date period. The long-term earnings growth rate for AZPN is currently projected at 18.2%.
Amdocs has gained 8.9% in the year-to-date period. The long-term earnings growth rate for DOX is currently projected at 11.5%.