Snap (SNAP 1.27%) is scheduled to report its first-quarter fiscal 2022 financial results on Thursday, April 21. The social media company has maintained an impressive streak of adding daily active users (DAU). Despite the solid user growth, the stock is down substantially in 2022.
The company's app and website are free to join and use, and it primarily makes money through advertising. Therefore, the Snap enthusiasts that log on daily are the lifeblood of the business. Investors will be laser-focused on the user acquisition totals in the first-quarter release on April 21.
Snap is growing its user base
As of Dec. 31, Snap boasted 319 million daily active users globally. That figure was up by 20% year over year. It was also 13 million more than it had in the previous quarter. The user growth in the most recent year and quarter is impressive considering that people are spending less time indoors and have more entertainment options. It could indicate that folks are finding more use cases with Snap as they venture outside. The reverse has been true for its competitor Pinterest, which is experiencing significant user losses as economic reopening gains momentum.
Further, Snap has sustained user growth for at least five consecutive quarters. The consistency of user growth should assuage investors who are concerned about its prospects as the pandemic evolves and business restrictions are removed.
Snap is a global social media business and attracts users worldwide. That said, advertisers are most interested in gaining users' attention from North America. The region is home to people with higher purchasing power. Ultimately, what marketers are trying to achieve with advertising is to drive additional sales of products and services. As a result, Snap's average revenue per user (ARPU) is multiples higher for DAU from North America than in any other region.
More specifically, ARPU in North America was $9.58 in Q4. Meanwhile, ARPU in Europe and the rest of the world segments were $2.54 and $1.12, respectively, in the most recent quarter. For that reason, shareholders should be pleased that Snap added five million DAU in North America year over year to bring its total to 97 million. Globally, ARPU reached $4.06 in Q4, a solid increase from $3.44 in the same quarter the prior year.
Of course, with rising user growth and increasing average revenue per user, overall revenue is surging for Snap. Revenue increased by 42% year over year in Q4 to $1.2 billion and was enough for Snap to report its first-ever profitable quarter on the bottom line. Net profits were a relatively minimal $23 million, but it is encouraging to see the company hit the inflection point.
What this could mean for Snap investors
Analysts on Wall Street expect Snapchat to report revenue of $1.07 billion and earnings per share (EPS) of $0.01. If the company meets that revenue projection, it will represent an increase of 44% from the same period the year before. The forecast from Wall Street is within the range management has guided for Q1.
Perhaps more important than revenue and earnings for the current quarter is management's commentary on a few factors spooking investors. Those include hesitant advertising demand due to supply chain constraints, headwinds from increased privacy protections from phone manufacturers, and increased competition from Tiktok. If management convinces investors the worst of the troubles from the aforementioned factors are behind it, the relief could boost the stock price following the announcement.