Snap (Nasdaq: SNAP) jumped 5% following its Q1 earnings report in which the company topped expectations for sales, earnings, and user growth. Its forecast for Q2 also exceeded expectations.
From its low in March 2020, Snap gained nearly 900% until its recent high in mid-February. Since then, the stock has been range-bound between $50 and $70. Given its string of positive results, it has a strong likelihood of breaking higher from this range.
Inside the Numbers
In Q1, Snap reported flat EPS for the quarter, while analysts were expecting a loss of $0.06 per share. Revenue came in at $770 million, beating expectations of $743.3 million. Snap ended the quarter with 280 million users which were higher than expectations of 274 million users. Another important metric for the company is average revenue per user which slightly exceeded expectations at $2.74 vs $2.72 consensus forecast.
In terms of its forecast for the second quarter, it expects an adjusted EBITDA forecast between break-even and a loss of $20 million. It expects to add another 10 million users in Q2. For revenue, Snap sees year-over-year revenue growth between 80 and 85%. Notably, this continues its acceleration from 66% growth in Q1.
Snap expects year-over-year revenue growth of 80% to 85% for the second quarter, Snap Chief Financial Officer Derek Andersen said in prepared remarks, a significant acceleration from the 66% annualized revenue growth it saw in Q1. The company also expects to reach approximately 290 million DAUs in the second quarter. The company expects a slight adverse effect from the privacy changes in Apple's (Nasdaq: AAPL) iOS14 which could impact social media companies' ability to target ads.
The quarter was also notable in that it was Snap's first for positive free cash flow which came out to $126 million, a significant improvement from the $5 million decline last year. The company anticipates being free cash flow positive in Q2 and 2021 which indicates that it's making the turn to profitability.
Stock Price Outlook
Snap is an intriguing stock for several reasons. It's on the leading edge of augmented reality (AR) technology and is one of the first to begin commercializing it. It's also hitting on all cylinders in terms of revenue growth, user growth, and revenue per user. Further, it's seeing an acceleration in revenue growth.
Its stock price has essentially been flat since the beginning of February and up 20% since December despite its string of impressive earnings reports. This has made the stock more attractive in terms of valuation especially when earnings estimates have been hiked by 25% for 2022 over the last 2 months.