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Snap (NYSE: $SNAP) Falls By Over 30% On Disappointing Q4 Results and Weak Guidance

Snap Inc. (NYSE: $SNAP)

Snap Inc. (NYSE: $SNAP) is a tech company based in Santa Monica, CA. It is best known for its social media platform Snapchat; and also owns Spectacles and Bitmoji. The company was founded in September 2011 by Bobby Murphy, Evan Spiegel, and Reggie Brown.

Snap’s top revenue source is digital ads, which it serves via Sponsored Lenses, a mobile video ad service, and 3D video overlays that utilize AR.

On Tuesday, February 6, 2024, Snap released its Q4 and full-year results after markets closed.

Snap Q4 Results

For the fourth quarter of fiscal 2023, Snap reported a revenue of $1.36 billion, compared to $1.3 billion the previous year, a 5% Y/Y increase. However, it was below analysts’ estimates of $1.38 billion by 1.5%.

For the quarter, non-GAAP loss per share was $0.08, a 43% improvement from the $0.14 reported the previous year. The reported non-GAAP loss per share was below analysts’ estimates of $0.06 by 25.7%.

The company reported a net loss of $248.25 million, a 14% decrease from the $288.46 million reported the previous year. It reported an adjusted EBITDA of $159.15 million, a 32% decline from the $233.28 million reported the previous year.

The full-year revenue was $ 4.61 billion, similar to the previous year. Its reported net loss for the full year was $1.32 billion, a 7% improvement from the previous year’s $1.43 billion net loss. Snap’s full-year non-GAAP loss per share was $0.09, a 47% improvement from the $0.17 non-GAAP loss per share in fiscal 2022.

Snap’s reported operating cash flow was $164.57 million at the end of the quarter, a 31% increase compared to $125.29 million the previous year. Free cash flow was $110.86 million, a 41% increase compared to $78.37 million the previous year.

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Q4 And Full Year Highlights

In Q4, the average revenue per user dropped to $3.29 compared to $3.47 the previous year. The company reported an operating margin of -18%, compared to -22% at the same time last year.

Snap’s adjusted gross margin for Q423 was 55%, a decline from the 65% reported the previous year. The adjusted EBITDA margin was 12%, compared to 18% the previous year.

In Q4, the Average Daily Active Users (DAU) increased by 39 million or 10% Y/Y to 414 million, with zero growth in North America, 4% in Europe, and 19% in the rest of the world.

For the full year, the average revenue per use was $11.49 compared to $12.98 in fiscal 2022. The FY23 operating margin was -30%, the same as FY22.

Snaps’ full-year adjusted gross margin was 55%, a decline from the 62% reported in FY22. Adjusted full-year EBITDA was $162 million, compared to $378 million in fiscal 2022. The FY23 adjusted EBITDA margin came in at 4%, a decline compared to the 8% reported in FY22.

Snap reported operating cash flow of $247 million for FY23, compared to $185 million in FY22. It reported a free cash flow of $35 million in FY23, compared to $55 million in FY22.

Snap’s Outlook for Q1 Fiscal 2024

The company anticipates daily active users will increase to 420 million in Q1. Snap expects revenue of $1.095-$1.135 billion in the first quarter of fiscal 2024, a Y/Y increase of 11%-15%. They anticipated an adjusted EBITDA of negative $55 million to negative $95 million for the first quarter.

Snap Stock (SNAP) Performance

SNAP stock was up 4.18% at the close of trading on February 6, 2024, at $17.45 per share, driven by upbeat analyst estimates for its Q4 results. Following the release of its Q4 results, after markets closed, Snap Inc. stock fell by 31.40% in premarket trading.

The sharp decline was a reaction to Snap Inc. missing analysts’ estimates and its depressing Q124 guidance. As of 6:40 AM in New York, the stock was trading at $11.96 per share.

Snap (NYSE: SNAP)

Snap Stock (SNAP) Forecast

Analysts are cautiously optimistic about the future of SNAP stock, giving it a moderate buy rating. They give the stock a broad target range, with a high of $22 and a low of $11. Their average target for the stock is $17.47, a 0.11% upside based on the last closing price. However, some analysts are likely to revise their estimates downwards following the release of the worse-than-expected Q4 results.

Final Thoughts

Based on its February 6, 2024 closing price, Snap stock is up 42.92% in the past 12 months. While the fourth quarter results were disappointing overall, there were some silver linings. For instance, Snap grew its daily active users to 414 million.

While the revenue guidance for Q124 was in line with estimates, the adjusted EBITDA guidance was below what analysts expected; it means that Snap’s growth will come at a significantly high cost.

The platform has faced significant headwinds to its advertising business since Apple changed its privacy policy in 2021, making it harder for apps to serve targeted ads. However, it is working on solutions, including using augmented reality (AR) to deliver ads, which is already driving revenue growth. The company has also entered the AI world by launching its My AI chatbot.  

As of the end of FY23, Snap held $3.5 billion worth of cash, cash equivalents, and marketable securities, which will be crucial to driving growth in the future amidst headwinds.

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