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Snap's Revenue Growth Accelerated -- and Its Guidance Looks Good, Too

By Daniel Sparks - Updated Apr 23, 2021 at 11:08AM

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The photo- and video-sharing app saw a huge lift in ad spend on its platform as the economy reopens.

As one of the first major digital advertising companies to report its quarterly results, Snap (SNAP 0.30%) set the bar high. The company grew its revenue by a higher rate than it did in the fourth quarter of 2020 even though management had guided for a deceleration. Even more, Snap's outlook for second-quarter revenue was extremely strong.

Here's a closer look at the tech company's impressive first-quarter results, as well as a glimpse into management's expectations for the current quarter.

A group of young people taking a selfie together.

Image source: Getty Images.

Momentum

Snap's first-quarter revenue grew 66% year over year to $770 million. This was an acceleration from the company's fourth-quarter revenue growth rate of 62%. Even more, Snap's first-quarter top line was far above the $720 million to $740 million management had guided for. 

Helping fuel Snap's growth was a sharp 22% year-over-year increase in daily active users. Total daily active users on the platform hit 280 million.

Importantly, the company saw a significant improvement in profitability. Free cash flow, or the cash left over after both regular operations and capital expenditures are taken care of, rose from about negative $5 million in the year-ago quarter to positive $126 million. Operating cash flow improved from $6.2 million in the year-ago quarter to $137 million.

"We began 2021 by achieving our highest year-over-year revenue and daily active user growth rates in over three years during the quarter," said Snap CEO Evan Spiegel during the company's first-quarter earnings release, "and delivering positive Free Cash Flow for the first time in Snap's history as a public company."

Looking ahead

Snap expects second-quarter revenue to increase from $454 million in the year-ago period to between $820 and $840 million, representing 81% to 85% growth.

Though this guidance does imply a significant acceleration over Snap's first-quarter revenue growth rate, investors should keep in mind that the company is up against an easy comparison. Snap's second-quarter 2020 revenue only rose 17% year over year as many advertisers reduced or even paused their ad spend amid lockdowns and economic uncertainty.

Nevertheless, Snap is clearly seeing significant advertiser momentum, as its guidance for about $830 million in second-quarter revenue (the midpoint of its guidance range) implies a solid sequential uptick from the company's $770 million in first-quarter revenue.

Snap's business strength as 2021 progresses shows that the company is seeing explosive growth as advertisers reopen their wallets and continue shifting more marketing dollars to the company's engaged userbase.

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