The company benefited from increased user adoption and higher advertising rates.
For more than a year, investors can rely on shares pop (pop 27.63%) After the company announced its profits. But it snapped that streak today after reporting first-quarter 2024 financial results, and as of 12:30 PM ET on Friday, the stock was up a staggering 29%.
Snap is finally benefiting from a rebound in the ad market
Entering the quarter, Snap guided with daily active users (DAUs) of 420 million and revenue of $1.1 billion at most. But in the first quarter, the company pleasantly surprised with 422 million DAUs and revenue of $1.2 billion, representing a 21% increase year over year. This is its best growth rate in more than two years.
Snap is benefiting from a few things right now. First, subscription service Snapchat+ reached 9 million users in the first quarter, up from 7 million at the end of 2023. Furthermore, ad prices (effective cost per thousand views) rose 8% year over year, reflecting several quarters of dips.
Snap generates revenue from displaying ads. When the cost per thousand views rises, the company makes more money for showing the same ad. This rebound is partly fueled by investor enthusiasm for the stock today.
Hard work remains to be done
I can’t say that Snap has necessarily crossed the stage of growth and profitability. It appears that management still intends to invest heavily to stimulate better growth in the future.
In the upcoming second quarter, Snap expects revenue growth of just 15% to 18%, a slight slowdown from its first-quarter results. The company will spend on infrastructure and distribute at least $1.1 billion in stock-based compensation this year.
It was a good quarter for Snap, and I appreciate the positive market reaction today. But with unanswered questions remaining regarding growth and high expenses, shareholders shouldn’t be in for a complete victory just yet.
Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
