Snap beat Q2 revenue estimates but guided Q3 below consensus as cautious advertisers and rising competition keep pressure on the social media company's turnaround.
Snap Inc. reported second-quarter revenue that beat analyst expectations, but its third-quarter forecast fell short of estimates, sending the stock lower in after-hours trading.
The social media company posted revenue of $1.24 billion for the three months ended June 30, up 16% from a year earlier and above the $1.23 billion consensus compiled by Bloomberg. Adjusted earnings per share came in at $0.02, matching analyst forecasts.
Snap's daily active users rose to 432 million in the quarter, a gain of 12 million from the first quarter and above the 431 million analysts had projected. Average revenue per user was $2.91, compared with the $2.88 consensus.
The better-than-expected results were driven by continued growth in Snap's direct-response advertising business, which now accounts for the majority of ad revenue. The company said its ad platform improvements, including better measurement and optimization tools, helped attract new advertisers and increase spending from existing ones.
But the outlook disappointed investors. Snap forecast third-quarter revenue between $1.33 billion and $1.38 billion, with the midpoint of $1.355 billion below the $1.36 billion analysts were expecting. The company said it expects daily active users of roughly 441 million in the current quarter.
"We are pleased with the progress we made in Q2, but we remain cautious about the operating environment," Chief Financial Officer Derek Andersen said on a conference call with analysts. "We are focused on executing against our priorities while managing costs."
The cautious guidance reflects ongoing uncertainty in the digital advertising market, where Snap competes with larger rivals Meta Platforms and Alphabet's Google for ad dollars. While the broader ad market has stabilized after a post-pandemic slowdown, some advertisers remain cautious about spending amid an uneven economic recovery.
Snap's user growth continues to outpace revenue growth, a dynamic that has weighed on the stock. The company added 15 million daily active users over the past year, an increase of about 4%, while revenue grew 16%. That gap has narrowed from a year ago, when user growth of roughly 13% outpaced revenue growth of about 5%.
The company's efforts to diversify beyond advertising are still in early stages. Snap said its subscription service, Snapchat+, now has more than 7 million paying subscribers, up from 5 million at the end of 2023. The service costs $3.99 a month and offers exclusive features.
Snap cut its workforce by about 10% in February as part of a restructuring aimed at reducing costs and focusing on priorities. The company said it ended the quarter with about 5,000 full-time employees.
On the call, Andersen said Snap expects to continue investing in its ad platform and augmented reality features while managing expenses. The company's cost structure has improved, with adjusted operating expenses falling 5% from a year earlier to $535 million.
Snap's stock, which has fallen roughly 40% this year, was down about 6% in after-hours trading following the earnings release. The shares closed regular trading at $11.82, giving the company a market value of about $18 billion.
Snap's Alpha Score of 49/100 reflects a mixed outlook, balancing its strong user engagement with the challenges of monetizing that audience in a competitive ad market.
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