Snap's 2024 plans are showing signs of paying off, and shares soar 25%

By Bill Peters

'Snap is also benefiting from advertisers looking to reduce dependency on Google and Meta,' analyst says

Shares of Snap Inc. rocketed higher after hours on Thursday after the social-media platform forecast second-quarter sales that were better than expected, as it attracts more users and tries to strengthen its advertising business.

The company, which runs the video-messaging app Snapchat, forecast second-quarter sales of between $1.23 billion and $1.26 billion, more than Wall Street's expectations for revenue of $1.22 billion. Executives said they expected daily active users of 431 million in the second quarter, compared with FactSet forecasts for 430.5 million.

"We are focused on executing against our roadmap to deliver improvements to our DR advertising platform to drive improved results for our advertising partners and accelerate topline growth," the company said in its earnings release.

Snap shares (SNAP) jumped 25% after hours on Thursday.

As other much-larger competitors - like Alphabet Inc.'s Google and Meta Platforms Inc.'s Facebook and Instagram - pull in billions in advertising revenue, Snap this year has tried to lean on machine learning to strengthen its ad business. It has also tried to make it easier for small and medium-sized businesses, along with online creators, to reach audiences.

Snap has also tried to unify Spotlight - which highlights posts from users across Snapchat - with users' story feeds. Executives in February also said they would spend 2024 focusing more on engaging users in North America and Europe, areas that the company says bring in more money.

The company on Thursday reported a first-quarter net loss of $305 million, or 19 cents a share, compared with $329 million, or 21 cents a share, in the same quarter last year. Revenue, which comes mainly from ads, climbed 21% year over year to $1.19 billion.

Analysts polled by FactSet expected Snap to lose 26 cents a share on a GAAP basis, with revenue of $1.12 billion. Snap reported an adjusted profit of three cents a share.

Daily active users during the first quarter rose 10% year over year to 422 million. Management said the number of small and medium advertisers on Snapchat jumped 85% over that time.

Snap reported results a day after President Joe Biden signed a bill that leaves the fate of one of its far-bigger rivals, TikTok, uncertain, at least in the U.S. Snap also reported in the wake of a big round of layoffs announced in February, and disappointing fourth-quarter sales that same month.

The bill signed by Biden will force TikTok's parent, the China-based company ByteDance, to choose between selling the video-sharing platform or getting banned nationwide. ByteDance has nine months to sell, with a possible three-month extension.

Ido Caspi, research analyst at Global X ETFs, said in emailed commentary that Snap's results were a pleasant surprise for investors, and evidence of a healthier digital-ad market after recession concerns last year made businesses more reluctant to advertise online.

"The company's initiatives to better serve advertisers based on their vertical and size is paying dividends and Snap is also benefiting from advertisers looking to reduce dependency on Google and Meta," he said.

"A potential TikTok ban could benefit the company even further down the line and with an election looming and major events like the Olympics on the horizon, we think the global advertising market is set for a strong 2024," he continued.

Shares of Meta (META) slid on Thursday, as investors worried about the company's big spending plans on artificial intelligence and other technology. Shares of Alphabet (GOOG) (GOOGL), however, jumped after hours on Thursday, after the search giant put up results that beat expectations, declared its first-ever cash dividend and authorized a stock buyback for as much as $70 billion.

-Bill Peters

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04-25-24 2018ET

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