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Snap Obliterates Analyst Estimates

By Daniel Sparks – Updated Jul 23, 2021 at 3:39PM

Key Points

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Here's what's behind the company's triple-digit growth.

Snap (SNAP -3.40%) joined Twitter Thursday afternoon with results that blew past analyst estimates. Both companies also provided strong guidance. Digital advertising, it seems, is making quite the rebound.

Snap's results, however, were particularly impressive. The parent company of social network Snapchat saw triple-digit revenue growth, beating the consensus analyst estimate by 16%. But this growth rate was helped by an easy comparison in the year-ago period, when the pandemic caused marketers to reduce or even pause their ad spend.

Here's a closer look at some of the key takeaways from the quarter.

A group of people taking a selfie

Image source: Getty Images.

Strong growth

Snap's total revenue soared 116% year over year to $982 million. Analysts, on average, were expecting revenue of $846 million.

This growth reflects "the momentum in our advertising business and the hard work of our team serving our partners and helping them to generate return on their investment," explained Snap chief business officer Jeremi Gorman in the company's second-quarter earnings call. "We benefited from a favorable operating environment and continued success with both direct response and large brand advertisers, and we continue to leverage our performant ad products to grow our advertiser base globally."

The tech company's user growth was strong, too. Daily active users increased 23% year over year -- more than twice the growth rate of Twitter's monetizable daily active users over the same timeframe. This put Snapchat's total daily active users at 293 million. Growth in its user base was broad-based, management said. But user growth was particularly strong in the company's "Rest of World" segment, which excludes North America and Europe. Users in this segment increased 55% year over year to 120 million.

A scaling business

Along with the company's strong top-line growth, Snap saw a significant improvement in profitability. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was $117 million during the period -- up $213 million from the negative EBITDA it reported in the year-ago period and marking the company's third consecutive profitable quarter on an adjusted EBITDA basis.

Management noted that its profitability benefited from scaling its cost structure. And, more importantly, Snap was able to do this while it continued to invest in the future of its business.

A strong outlook

Looking to the third quarter, management expects revenue to increase 58% to 60% year over year. The slower growth rate is primarily due to a return to more difficult comparisons. Snap's revenue in the second quarter of 2020 grew only 17% year over year. Third-quarter 2020 revenue, however, increased 52% year over year. With a year-ago comparison like this, Snap's third-quarter 2021 guidance is impressive.

Rapid growth in both Snap's revenue and user base, its cost efficiencies gained from scaling, and management's robust outlook for Q3 highlight a tech company that is firing on all cylinders.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Twitter. The Motley Fool has a disclosure policy.

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