SNAP Stock: This Social Media Company Just Crushed Q2 Results
July 23 2021 - 3:31PM
Finscreener.org
Shares of Snap Inc. (NYSE: SNAP)
have gained over 23% in early market trading on July 23 on the back
of its
stellar second-quarter results. In Q2, Snap reported revenue of
$982 million, an increase of 116% year over year and significantly
higher than Wall Street estimates of $846 million. Analysts also
forecast the company to report a loss per share of $0.01. But
Snap’s earnings stood at an impressive $0.10 per share in the June
quarter.
Snap’s daily active users surged to 293 million while analysts
forecast this figure at 290.3 million. Its average revenue per user
stood at $3.35 compared to Wall Street estimates of $2.92. The
company’s net loss narrowed by 53% to $152 million compared to a
loss of $326 million in Q2 of 2020.
While Snap’s robust revenue growth can be attributed to higher
ad spending the company’s chief business officer, Jeremi Gorman
explained the growth reflects “the momentum in our advertising
business and the hard work of our team serving our partners and
helping them to generate return on their investment.” He added, “We
benefited from a favorable operating environment and continued
success with both direct response and large brand advertisers, and
we continue to leverage our performant ad products to grow our
advertiser base globally.”
Snap expects revenue growth of between 58% and 60% in
Q3
Snap Inc. has forecast revenue to grow between 58% and 60% year
over year in the third quarter. This was significantly lower than
Wall Street’s Q3 revenue growth forecast of 84% year over year. In
the third quarter of 2020, Snap reported sales of $550 million.
Snap is now moving towards consistent profitability. It
generated an adjusted EBITDA of $117 million in Q2 compared to a
loss of $96 million in the prior-year period. It was Snap’s third
profitable quarter of adjusted EBITDA in the last 12-months.
Snap Inc is forecast to improve its bottom-line from an adjusted
loss per share of $0.06 in 2020 to earnings of $0.67 per share in
2022. Analysts also expect Snap
sales to rise by 60% in 2021 and by 48% in 2022. Given its
revenue is forecast to touch $5.76 billion in 2022, SNAP stock is
trading a forward price to sales multiple of 21x which is
steep.
However, growth stocks like Snap Inc command a high valuation.
Its sales grew by 43%, 45% and 46% in 2018, 2019 and 2020%
respectively. In Q1 of 2021 sales were up 66% year over year and
this growth rate has accelerated in the June quarter as well.
What next for SNAP stock investors?
Snap has successfully created and monetized a user base that is
highly engaged. As the purchasing power of Snapchat users
increases, revenue will continue to move higher over the upcoming
decade. Businesses are also looking at Snap as a platform where
they can spend millions of advertising dollars.
As seen earlier, Snap is racing towards profitability and it
reported a positive free cash flow for the first time ever in Q1.
Its operating cash flow also rose to $137 million in Q1, up from
just $6 million in the year-ago quarter. In Q2 however Snap
reported a free cash flow of negative $116 million due to an
increase in net working capital.
A positive cash flow metric will provide Snap will enough
financial flexibility. The company is eying the lucrative augmented
reality space which might touch $300 billion by 2025.
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