Snap (SNAP) delivered disappointing second-quarter 2022 results as both the top and bottom lines came in short of the FactSet consensus estimates. In addition, with significant uncertainty surrounding advertising demand for the platform, the firm did not provide any financial guidance. However, management expects continuing double-digit user growth in the third quarter. Snap’s latest results display the impact of the macro environment uncertainty in addition to advertisers’ reaction to the effect of Apple’s policies on the platform’s direct response ad measurement capabilities. While Snap’s numbers may also indicate quarterly weakness in other social media platforms, we think on platforms such as TikTok, Meta’s Instagram, and Google’s YouTube, all of which have much larger user bases, the impact may be less.
We reduced our growth assumptions significantly, resulting in a new fair value estimate of US$30, down from US$49. In our view, while Snap has continued to disappoint on the revenue side, continuing growth in users and engagement time improvement on the platform are positioning the firm well to attract advertisers after it addresses the difficulties faced by its ad measurement tools, returning the firm to stronger double-digit growth rate.
Snap’s second-quarter daily active user count increased 18% from last year to 347 million, but user monetization was very disappointing with average revenue per user declining 4%, resulting in only 13% top-line growth to US$1.1 billion. Despite growth in user engagement, which also drove ad impressions 9% higher, the firm’s inability to deliver direct response ad performance measurement in time, and some hesitancy in increasing ad budgets by advertisers, drove a substantial slowdown in advertising demand which decelerated ad price growth to only 4%, compared with 122% growth in the second quarter of last year.