AdvertisingEarnings Season

Snap’s Earnings Report Shows Revenue and User Growth Despite a Possible Q3 Slowdown

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The takeaways

  • Snap’s earnings reported $454 million in Q2 revenues, beating Wall Street expectations, but losses fell $70.8m more than last year.
  • Investors received a warning that Q3 sales will decline due to COVID-19 and reduced advertising spends.
  • Snap is “cautiously optimistic” yet this stance could further add to advertiser and investor uncertainty.

What happened?

Snapchat owner Snap reported Q2 revenues of $454 million, up 17% year-on-year and beating Wall Street estimates of $441.6m. 9m new daily users (also 17%) over Q1 for a total base of 238m fell in line with analyst expectations. Conversely, Snap’s net loss was $326m, compared with a $255.2m loss last year.

Expectations of slower Q3 sales prompted executives to issue an investor warning yesterday. Though revenue growth was better than expected, user growth was seen as unsurprising, given the current lockdown orders.

Snap Chief Financial Officer Derek Andersen and CEO Evan Spiegel both gave prepared remarks. By way of warning, Andersen said that “Advertising demand in Q3 has historically been bolstered by factors that appear unlikely to materialize in the same way they have in prior years, including the back to school season, film release schedules, and the operations of various sports leagues.”

What this means for advertisers

Though Snap spun the news as positive, the warning hinted at further challenges ahead. Andersen noted that year-on-year growth fell from 58% in January and February to approximately 25% in March. He further suggested in light of this that growth would continue under normal market conditions. Future success therefore depends on the duration of the pandemic and advertising budgets, which have contracted because of the former.

Snapchat’s user growth affirms its high audience interest, but advertisers’ ability to capitalise on this also depends on their budgets. Currently, there’s little indication that Snapchat benefitted from the Facebook boycott like YouTube and Twitter have. For now, Snap is “cautiously optimistic that trends could improve over time,” whilst remaining realistic about “volatile” conditions.

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