Snap Q2 FY2022 Earnings Preview: Key Insights to Watch

Focus on SNAP's daily active user growth

Essential Highlights

• Analysts forecast an adjusted EPS of $0.04, down from $0.09 in Q2 FY2021.
• Average daily active users (DAUs) are projected to increase year-over-year but at the slowest rate in over two years.
• Revenue growth is anticipated to continue but will be the slowest in at least 14 quarters.

Snap Inc. experienced remarkable earnings and revenue expansion throughout 2020 and 2021, fueled by the global pandemic’s surge in digital engagement. However, this momentum is shifting. As Snap’s business heavily relies on advertising, the current economic slowdown is causing a notable deceleration in revenue growth and advertising demand. Additionally, regulatory pressures are intensifying; notably, a California state senate committee recently advanced legislation that could empower state attorneys to sue social media platforms like Snap over features purportedly harmful to children.

Investors will closely monitor how Snap addresses these hurdles when it announces its Q2 FY2022 results on July 21, 2022. Market expectations suggest a significant year-over-year decline in adjusted earnings per share, alongside the slowest revenue growth pace in more than three years.

Another critical focus is Snap’s daily active users, a vital indicator of the platform’s overall reach. Growing the user base is essential for attracting increased advertising investments. Analysts predict that while DAUs will rise, the growth rate will be the slowest in over two years.

Snap’s stock outperformed the market during much of summer and early fall 2021 but faced a sharp decline following its Q3 FY2021 earnings report in October. Since then, the shares have generally trended downward, with only a modest rebound around the Q4 FY2021 earnings announcement in February 2022. Since late May, the stock has traded sideways. As of July 20, Snap’s one-year total return stands at -76.3%, significantly underperforming the S&P 500’s -7.6% return.

Snap's Earnings Performance Overview

Historically, Snap has struggled to achieve consistent profitability. The company reported adjusted losses in five out of eight quarters during FY2019 and FY2020. However, it posted six consecutive quarters of positive adjusted EPS from Q3 FY2020 through Q4 FY2021 before returning to a loss in Q1 FY2022. For Q2, analysts expect a modest positive EPS of $0.04 per share, reflecting a 57.1% decrease compared to the same quarter last year.

On the revenue front, Snap has enjoyed robust growth for at least the past 14 quarters. In FY2021, revenue growth ranged from a peak of 116.3% in Q2 to a low of 42.4% in Q4. The growth rate slowed to 38.1% in Q1 FY2022, with expectations for Q2 to slow further to 16.5% year-over-year—the slowest since at least Q1 FY2019.

Source: Visible Alpha

Critical Metric to Watch: Daily Active Users

As highlighted, Snap’s daily active users (DAUs) remain a pivotal metric. DAUs represent registered Snapchat users who open the app at least once within a 24-hour period. The quarterly average is calculated by summing daily DAUs and dividing by the number of days in the quarter. This figure offers a clear snapshot of Snap’s user base size. Since the majority of Snap’s revenue stems from selling advertising space, a larger user base enhances the platform’s appeal to advertisers. To maintain and grow this base, Snap must continually innovate and offer engaging features that outperform competitors.

During the pandemic, Snap’s DAUs surged as more users turned to social media for entertainment. DAUs climbed from 203 million in Q2 FY2019 to 238 million in Q2 FY2020, then to 293 million in Q2 FY2021. Snap surpassed 300 million DAUs for the first time in Q3 FY2021, reaching a peak of 332 million in Q1 FY2022. Analysts forecast a new record of 344.1 million DAUs for Q2 FY2022. Despite these impressive numbers, the growth rate is decelerating. DAU growth peaked at 23.1% year-over-year in Q2 FY2021 but slowed to 20.4% in Q4 FY2021 and 18.6% in Q1 FY2022. For Q2 FY2022, the expected growth rate is 17.4%, marking the slowest increase in two years.

Explore useful articles in Company News as of 25-07-2022. The article titled " Snap Q2 FY2022 Earnings Preview: Key Insights to Watch " offers in-depth analysis and practical advice in the Company News field. Each article is carefully crafted by experts to provide maximum value to readers.

The " Snap Q2 FY2022 Earnings Preview: Key Insights to Watch " article expands your knowledge in Company News, keeps you informed about the latest developments, and helps you make well-informed decisions. Each article is based on unique content, ensuring originality and quality.