Snap Stock Surges Over 20% After Strong Q1 Earnings Report

Snap stock soared more than 20% in early trading on Friday following the release of its first quarter earnings report. The parent company of Snapchat, based in Santa Monica, California, exceeded expectations with revenue growth of 21%, signaling a significant rebound for the social media business.

In its latest report, Snap disclosed earnings of 3 cents per share (adjusted) on revenue of $1.2 billion for the quarter ending in March. Analysts had forecasted a loss of 5 cents per share on sales of $1.12 billion, according to FactSet data. This marked a substantial improvement compared to the same period last year when Snap earned 1 cent per share on an adjusted basis with sales of $988.6 million.

For the upcoming quarter, Snap provided revenue guidance of $1.24 billion at the midpoint of its range. Prior to the announcement, analysts had estimated sales of $1.22 billion for the quarter ending in June, according to FactSet.

The robust revenue growth observed in the first quarter reflects a remarkable turnaround for Snap, which had experienced slower growth in the past quarters. Revenue had grown by only 2% in the December quarter and 5% in the March quarter. This comparative stagnation had led investors to favor Meta Platforms, the parent company of Facebook and Instagram, in the digital advertising sector.

Snap’s revenue growth acceleration appears to be stemming from an uplift in the digital ad market following a slump in 2022. The 21% growth in the March quarter is the highest reported by Snap in the past two years.

In a letter to shareholders, Snap executives noted that revenue growth is outpacing previous expectations, with improvements attributed to enhancements in the advertising platform and increased demand for direct-response advertising. Notably, Snap has seen substantial growth in Snapchat+, its subscription product offering exclusive features for a monthly fee. The platform now boasts 9 million paying users, marking a three-fold increase year over year.

Moreover, Snapchat’s daily active users surged by 10% year over year to reach 422 million, with expectations to reach 431 million by the end of June. Snap anticipates a 16% year-over-year increase in revenue for the June quarter, despite facing a tougher comparison with the same period last year and other seasonal factors.

Analysts reacted positively to Snap’s strong performance, with many revising their price targets upwards. Jefferies analyst James Heaney highlighted the pronounced revenue growth and raised the price target to 19 from 17, maintaining a buy rating on the stock. On the other hand, Stifel analyst Mark Kelley upped the price target to 13 but kept a hold rating, citing the need for a more predictable revenue run rate.

Jason Helfstein of Oppenheimer also maintained a neutral stance on the stock, emphasizing that Snap’s growth in daily active users is primarily coming from regions with weaker monetization, posing potential challenges.

Despite the significant surge in Snap’s stock price post-earnings, the company still has ground to cover as it remains down about 10% year-to-date and significantly below its all-time peak reached in September 2021.

Before the earnings release, Snap’s IBD Composite Rating was 31 out of 99, indicating room for improvement, while the IBD Relative Strength Rating stood at 25, suggesting a notable underperformance compared to the broader market.