Snap Earnings: Attracting Users and Advertisers Remains a Constant Struggle Against Giants

Key Morningstar Metrics for Snap

• Fair Value Estimate: $14.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Very High

What We Thought of Snap’s Earnings

After posting surprisingly strong revenue and providing an upbeat forecast last quarter, Snap SNAP did the opposite this time, sending its shares sharply lower. Results were particularly disappointing relative to the solid digital advertising demand giants Meta Platforms META and Alphabet GOOGL have generally seen. Our growth outlook for Snap was already conservative, and as with last quarter, we’re maintaining our $14 fair value estimate.

Growth in daily active users continued to steadily slow during the quarter, increasing 8.8% year over year to 432 million. Snap disclosed that monthly active users have reached 850 million, indicating that engagement (the ratio between daily and monthly users) has held roughly constant over the past couple of years. The North American daily user count remained flat at 100 million, down about 1% compared with the prior year. Management continues pointing to various initiatives to drive increased user growth and engagement, such as map features, new lenses, and AI-driven content recommendations. Still, we think the social media landscape favors the largest players that have developed stronger network effects.

Total revenue increased 16% from last year to $1.2 billion, falling just below the midpoint of management’s forecast range. Revenue per daily user increased 6.3%, with solid growth in all regions, but gains were not as impressive as in the prior quarter. Ad impressions increased 13% year over year while ad prices were down 3%, with weakness in brand advertising offsetting strong direct-response demand. Snap continues to focus its efforts on small and medium-sized businesses, with the number of active advertisers doubling year over year. The operating loss narrowed to $254 million from $404 million a year ago. We continue to expect Snap won’t reach operating profitability until 2028.