Snap Inc. (SNAP) - Get Report shares were marked sharply lower Wednesday after the messaging app maker unveiled mixed second quarter earnings that included solid revenue gains against disappointing figures on user growth.
Snap, which makes the Snap Chat messaging app, posted a loss of 9 cents per share for the three months ending in June, a figure that fell in-line with Street estimates, on revenues of $454 million, which rose 17% from the same period last year.
Daily active users on the app rose by 9 million over the quarter, taking the overall total to 238 million, a 17% improvement from last year but modestly shy of analysts' estimates as the company noted that the initial quarterly boost, triggered by stay-at-home orders during the peak of the pandemic 'dissipated faster than we anticipated' once those lockdowns began to ease.
"Despite the unusual circumstances influencing user growth in the quarter, we were pleased with the overall level of growth and that growth continued month over month from April to May, and May to June," CFO Derek Andersen told investors on a conference call late Tuesday. "The operating environment has remained challenging as COVID-19 continues to impact macroeconomic conditions and the businesses of our advertising clients. Many of our advertisers have seen interruptions in their businesses, especially those that rely on in-person interaction with their customers."
"In addition, many advertisers paused spending for periods of time during the quarter in order to swap out their ad creative for messaging that was more appropriate for the given moment," he added. "These challenging circumstances interrupted otherwise robust momentum in our self-serve platform."
Snap shares were marked 5.9% lower in early trading Wednesday to change hands at $23.32 each, a move that would trim the stock's year-to-date gain to around 40%. Snap priced it March 2, 2017 IPO at $17 each, with the shares rising to an all-time high of $29.44 each the following day.
Snap executives also said that it was "difficult to ascertain" what the impact of the recent Facebook FB ad boycott would mean for its own revenue projections, but noted that it had 'opened doors' for the group to have talks with brand managers 'at the highest levels' as advertisers evaluate platforms which align with their values.
The group did not, however, provide near-term revenue or earnings guidance on the investor call.
"While (daily active users) came in slightly below expectations, video content continued to drive engagement on the platform across all demographics, AR experiences have gained increasing relevance during the pandemic, and the recent launch of third-party Minis offers yet another reason for users to stay within the app," said Canaccord Genuity analyst Maria Ripps, who carries a $25 price target on the stock.
"(Average revenue per user) was ahead of estimates due to the company’s ongoing product innovation, which in Q2 included the global rollout of Dynamic Ads along with new targeting capabilities and ad placements," Ripps added. "While we see both product and platform innovation continuing to offer improved monetization, the combination of macroeconomic uncertainty, mixed performance on user growth, higher near-term expenses and a premium valuation keep us at a HOLD rating."