Snap (SNAP) reported its third quarter earnings Tuesday after the bell, beating on the top and bottom lines and suggesting that more growth for the social messaging company may be on the horizon.
Snap shares surged up at least 11% in after-hours trading.
These earnings beats were a much-needed win. Snap, owner of Snapchat, has become representative of the malaise that can affect an advertising-dependent tech company. The business has struggled since the launch of Apple’s (AAPL) App Transparency Tracking, and was sent reeling by a digital advertising slowdown that’s only just picking up again.
Many of Snap’s plans for its future — for example, its repeated efforts to make mainstream AR glasses — have yet to fully take. The company this year released its own AI chatbot, My AI, but its rollout has reportedly raised fears among parents concerned for their children’s safety.
In its earnings release, Snap revealed that over 200 million people have used My AI, sending more than 20 billion messages.
“We are focused on improving our advertising platform to drive higher return on investment for our advertising partners, and we have evolved our go-to-market efforts to better serve our partners and drive customer success,” Snap CEO Evan Spiegel said in a statement.
Additionally, Snap offered up a relatively optimistic internal forecast, saying that it sees its Q4 adjusted Ebitda coming in between $65 million and $105 million, a wide range but on the high end from Wall Street’s estimates of $100.6 million. Notably, this was not formal guidance; Snap is opting to disclose internal guidance, which should be viewed with some caution.
The earnings rundown
Here are the key numbers that Snap reported, compared to Wall Street’s expectations as compiled by Bloomberg:
Adjusted Earnings Per Share: $0.02 actual versus –$0.04 expected
Revenue: $1.19 actual versus $1.11 billion expected
Global Daily Active Users (DAUs): 406 million actual versus 405.79 million expected
Snap’s daily active user numbers are particularly notable – they mark growth of 12% year-over-year.
Snap COO Jerry Hunter is set to retire, the company revealed in its report. Snap also authorized a share buyback program up to $500 million, implying that management thinks the company’s stock is undervalued.
Snap shares came into this earnings cycle up about 9% year to date, lagging the Nasdaq Internet Index, which is up about 34% in 2023.
Despite the upswing in Snap’s revenue and signals that the advertising market is recovering, the company’s investor letter acknowledged that the third quarter was tough – and telegraphed that trying times are still ahead.
“Our business continued to face significant headwinds in the third quarter,” the letter, published in conjunction with earnings, reads. “We believe that we can be successful in this new operating environment — with elevated inflation, increasing interest rates, and heightened geopolitical tensions — by rigorously prioritizing our investments.”
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