Snap Inc. (SNAP), the parent company of the popular social media platform Snapchat, released its fourth-quarter earnings report on Thursday. Despite beating earnings estimates, SNAP shares plummeted by 29%. What happened?
Key highlights from the earnings report include adjusted earnings per share (EPS) of $0.08, surpassing the estimated $0.06. The company's adjusted EBITDA was $159.1 million, a 32% decrease year-over-year, but still higher than analysts' expectations of $111.8 million. However, revenue came in at $1.361 billion, slightly lower than the estimated $1.376 billion.
Snap reported net loss of $248 million, compared to $288 million in the same period last year. The company's operating cash flow was $165 million, compared to $125 million in the prior year, and free cash flow was $110.9 million, a 41% increase year-over-year.
In terms of user growth, SNAP reported having 414 million daily active users (DAUs) during Q4, surpassing the estimated 411.58 million. This represents a year-over-year growth rate of 10%. Notably, North America retained 100 million DAUs, while Europe saw a 4.3% increase to 96 million DAUs. The Rest of the World experienced the highest growth rate, with a 19% surge to 218 million DAUs.
When analyzing revenue by region, North America generated $899.5 million, a 2.2% increase compared to the previous year and slightly higher than the estimated $875.9 million. Europe reported revenue of $238.3 million, up 9% year-over-year but slightly lower than the expected $245.1 million. The Rest of the World region earned $223.5 million, an 11% year-over-year increase, but fell short of the estimated $249.6 million.
Average revenue per user (ARPU) figures displayed a mixed performance across regions. Overall ARPU decreased by 5.2% to $3.29, falling slightly short of the estimated $3.33. North America saw a 2.2% growth in ARPU, reaching $8.96, while Europe experienced a 4.6% increase to $2.49. In contrast, the Rest of the World observed a decline of 6.4% to $1.03, missing the estimated $1.17.
Snap Inc. also provided guidance for the first quarter of 2023. The company anticipates approximately 420 million DAUs during Q1, slightly above the estimated 418.55 million. Revenue is projected to range between $1.095 billion and $1.135 billion, suggesting a year-over-year growth rate of 11% to 15%. However, Snap foresees an adjusted EBITDA loss between $55 million and $95 million, compared to the estimated loss of $32.7 million.
Although Snap Inc. reported solid user growth and beat earnings expectations, the downward movement in its share price suggests that investors were not entirely satisfied. The decline in revenue, lower-than-anticipated ARPU, and projected adjusted EBITDA loss for the next quarter may have contributed to the negative market reaction.
Despite the market's initial response, Snap Inc. remains optimistic about future growth as it continues to focus on enhancing its direct-response advertising platform and delivering improved results for its advertising partners. The recently signed publisher deal with Spotify in the United States aims to integrate shorter-form content from Spotify's podcasts onto the Snapchat platform, further diversifying its offerings.
As with any investment, it is crucial to perform additional analysis and monitor the company's progress to make informed decisions. Investors should consider Snap Inc.'s overall financial position, competition within the industry, and the effectiveness of its advertising strategies when evaluating its long-term potential.