Soar at blowout profits while user growth impresses

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    Social media company Snap (NYSE: SNAP) reported blockbuster results for the second quarter on Thursday evening, which showed revenue spiked due to strong user growth.

    The advertising industry had withdrawn significantly a year ago at the beginning of the pandemic, which now creates favorable comparisons for advertising-based companies.

    As of 11 a.m. EDT, the Snapchat mom’s shares rose 20%.

    Advertising budgets are recovering

    Revenue rose 116% to $ 982 million in the second quarter, completely beating the consensus estimate of $ 846.6 million in revenue. Snap added 13 million daily active users (DAUs) during the quarter, increasing its global user base to 293 million DAUs.

    Most of the DAU earnings come from emerging markets in the company’s Rest of World segment, while user growth has been more modest in North America and Europe.

    On the monetization front, Snap improved average revenue per user (ARPU) across all of its geographic segments.

    segmentARPU (Q2 ’21)Year-on-year growth
    North America$ 7.37116%
    Europe$ 1.9576%
    rest of the world$ 1.0720%
    Global$ 3.3576%
    Data source: Snap.

    “Our results for the second quarter reflect the broad strength of our business, as we were able to increase both revenue and daily active users at the highest rates that we have achieved in the last four years,” commented CEO Evan Spiegel in a press release . “We’re excited about the progress our team is making in developing our augmented reality platform, and we’re excited about the many opportunities to grow our community and business around the world.”

    Adjusted gross margin also rose to 55% as Snap kept costs under control. The company was one of the first major tech companies to fully outsource its cloud infrastructure to third-party providers, and hosting costs have remained stable.

    Despite using a capital-poor model that comes with reliance on other companies for cloud infrastructure, free cash flow was minus $ 116 million.

    Snap continues to innovate in Augmented Reality (AR) and is launching the latest version of its fourth generation Spectacles wearable in May. Earlier models allowed users to take snaps, but the latest Spectacles will overlay content in true AR fashion and incorporate the platform’s Lens Studio.

    All of this resulted in adjusted earnings per share of $ 0.10, while Wall Street analysts expected Snap NS $ 0.01 per share on a non-GAAP basis. Adjusted EBITDA was $ 117 million.

    A rosy outlook despite COVID-19 uncertainties

    Forecasts were also strong, with Snap forecasting third-quarter revenue to grow 58 to 60 percent to $ 1.07 to $ 1.09 billion.

    This outlook is well above analysts’ forecast revenue of $ 1.01 billion. Adjusted EBITDA is expected to be in the range of $ 100 million to $ 120 million.

    “We look forward to the third quarter as we see a resurgence of COVID-19 cases and the ongoing impact of the pandemic around the world, which continues to be an unsafe operating environment,” added CFO Derek Andersen on the conference call with analysts. “We currently estimate that DAU will grow by around 21% to around 301 million in the third quarter.”

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