Snap stock jumped nearly 30% in trading Friday, after the Snapchat parent company reported first quarter earnings that easily topped expectations. Revenue growth of 21% marked what one analyst called a "massive reacceleration" for the social media business.
In results published late Thursday, the Santa Monica, Calif.-based Snap said it earned an adjusted 3 cents per share on sales of $1.2 billion for the March-ended quarter. On average, analysts projected Snap would post an adjusted loss of 5 cents per share on sales of $1.12 billion, according to FactSet.
For the same period last year, Snap earned 1 cent per share on an adjusted basis with sales of $988.6 million.
For the current quarter, Snap guided for sales of $1.24 billion at the midpoint of its range. Heading into the report, analysts projected Snap would tally $1.22 billion in sales for the June-ending quarter, according to FactSet.
On the stock market today, Snap stock rallied more than 27% to close at 14.53.
Snap Revenue Accelerates Big Time
The results represent a major acceleration for Snap's revenue growth. Sales grew 5% year over year in the company's December quarter and 5% in the September-ended period. After its December quarter, Snap's meager revenue growth led to some unflattering comparisons to Meta Platforms, the larger and faster-growing company behind Facebook and Instagram.
Snap and Meta both derive nearly all revenue from selling digital advertising.
Snap's sales growth appears to finally be bouncing back from a digital ad market slump that started in 2022. The 21% growth for the March quarter is the highest for Snap in two years.
In a letter to shareholders, Snap executives said revenue growth is "improving faster than we had previously anticipated."
The company credited improvements to its advertising platform and increased demand for its direct-response advertising. Direct-response ads are designed to drive a response from a user, such as clicking directly into a product page for an e-commerce business. Snap has focused on the category to drive growth.
Snap's shareholder letter also highlighted growth for Snapchat+. The subscription product offers access to exclusive app features for $3.99 per month. The number of paying users tripled year over year to 9 million, the company said.
Meanwhile, daily active users of Snapchat increased 10% year over year to 422 million. The company says it expects to reach 431 million users by the end of June.
The midpoint of Snap's sales guidance for its June quarter would represent a roughly 16% increase from a year earlier. Snap officials noted in the company's shareholder letter that it faces a tougher year-over-year comparison with the current quarter, along with other seasonal factors.
Wall Street Response For Snap Stock
Analysts mostly upped their targets for Snap following the report.
"We believe the massive reacceleration in revenue growth and above consensus Q2 rev guide should help fuel the bull case for the stock," wrote Jefferies analyst James Heaney in a client note Thursday. "Based on the improvements made to the ad platform, we suspect that the Q2 rev guide implying 3%-6% points of deceleration vs. Q1 is conservative."
Heaney reiterated a buy rating for Snap and upped his price target to 19, from 17. He highlighted that the company reported 85% year-over-year growth in spending by small and medium-size businesses on Snapchat.
However, many on Wall Street appear to be approaching the positive reaction with some caution.
Stifel analyst Mark Kelley, for instance, upped his price target to 13 for Snap stock, but maintained a hold, or neutral, rating. "We remain on the sidelines until we have a better handle on a more predictable revenue run rate," Kelley wrote.
Jason Helfstein, an analyst with Oppenheimer, also remained neutral on the stock. He noted that the number daily active users for Snapchat was flat quarter to quarter in North America and Europe.
"All growth continues to be in rest-of-world, which has weaker monetization," Helfstein wrote to clients Friday.
Snap had an average revenue per North American user of $7.44, as of the first quarter. That's compared to average revenues of $2.04 per European user and $1.13 per user in other regions.
Snap Stock: Technical Ratings
Even with the surge Friday, Snap has a big hole to dig out from. Shares remain down about 10% year-to-date and more than 80% off an all-time high reached in September 2021.
Coming into the earnings report, Snap stock had an IBD Composite Rating of 31 out of a best-possible 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings in one rating. The best growth stocks have a Composite Rating of 90 or better.
However, Snap's IBD Relative Strength Rating was 25 out of 99, indicating significant underperformance compared with the rest of the market.
