Social network Snapchat (NYSE: SNAP) beat Wall Street’s revenue expectations in Q3 CY2024, with sales up 15.5% year on year to $1.37 billion. Its non-GAAP profit of $0.08 per share was also 55.2% above analysts’ consensus estimates.
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Snap (SNAP) Q3 CY2024 Highlights:
- Revenue: $1.37 billion vs analyst estimates of $1.36 billion (1.1% beat)
- Adjusted EPS: $0.08 vs analyst estimates of $0.05 ($0.03 beat)
- EBITDA: $132 million vs analyst estimates of $90.24 million (46.2% beat)
- Gross Margin (GAAP): 53.5%, in line with the same quarter last year
- Operating Margin: -12.6%, up from -32% in the same quarter last year
- EBITDA Margin: 9.6%, up from 3.4% in the same quarter last year
- Free Cash Flow was $71.83 million, up from -$73.44 million in the previous quarter
- Daily Active Users: 443 million, up 37 million year on year
- Market Capitalization: $17.77 billion
“I’m proud of the team’s progress this quarter, delivering strong community growth and deepening engagement while driving improved financial performance,” said Evan Spiegel, CEO.
Company Overview
Founded by Stanford University students Evan Spiegel, Reggie Brown, and Bobby Murphy, and originally called Picaboo, Snapchat (NYSE: SNAP) is an image centric social media network.
Social Networking
Businesses must meet their customers where they are, which over the past decade has come to mean on social networks. In 2020, users spent over 2.5 hours a day on social networks, a figure that has increased every year since measurement began. As a result, businesses continue to shift their advertising and marketing dollars online.
Sales Growth
Examining a company’s long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Luckily, Snap’s sales grew at a decent 11.5% compounded annual growth rate over the last three years. This is a useful starting point for our analysis.
This quarter, Snap reported year-on-year revenue growth of 15.5%, and its $1.37 billion of revenue exceeded Wall Street’s estimates by 1.1%.
Looking ahead, sell-side analysts expect revenue to grow 13.5% over the next 12 months, an acceleration versus the last three years. This projection is commendable and shows the market believes its newer products and services will catalyze higher growth rates.
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Users
User Growth
As a social network, Snap generates revenue growth by increasing its user base and charging advertisers more for the ads each user is shown.
Over the last two years, Snap’s daily active users, a key performance metric for the company, increased by 12.2% annually to 443 million in the latest quarter. This growth rate is strong for a consumer internet business and indicates people love using its offerings. 
In Q3, Snap added 37 million daily active users, leading to 9.1% year-on-year growth. The quarterly print was lower than its two-year result, suggesting its new initiatives aren’t accelerating user growth just yet.
Revenue Per User
Average revenue per user (ARPU) is a critical metric to track for consumer internet businesses like Snap because it measures how much the company earns from the ads shown to its users. ARPU can also be a proxy for how valuable advertisers find Snap’s audience and its ad-targeting capabilities.
Snap’s ARPU fell over the last two years, averaging 4.9% annual declines. This isn’t great, but the increase in daily active users is more relevant for assessing long-term business potential. We’ll monitor the situation closely; if Snap tries boosting ARPU by taking a more aggressive approach to monetization, it’s unclear whether users can continue growing at the current pace. 
This quarter, Snap’s ARPU clocked in at $3.10. It grew 5.8% year on year, slower than its user growth.
Key Takeaways from Snap’s Q3 Results
We were impressed by how significantly Snap blew past analysts’ EBITDA expectations this quarter. We were also glad it expanded its number of users. Holding aside Consensus expectations, we don't love that its revenue growth stalled. Overall, this quarter had some key positives, and expectations were likely low given a history of inconsistent quarterly performance. The stock traded up 8.2% to $11.79 immediately after reporting.
Indeed, Snap had a rock-solid quarterly earnings result, but is this stock a good investment here?When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.
