Snap (SNAP -2.12%) reported first-quarter 2022 operating results after the markets closed on Thursday, April 21. The social media company, popular with teens and young adults, continued its streak of adding daily active users.
The quarter was not without challenges as Apple's privacy changes impacted its ability to sell target advertising, and macroeconomic factors decreased advertiser demand. A closer look at Snap's Q1 results and what it could mean for investors follows.
Image source: Getty Images.
Macroeconomic headwinds holding back revenue
Most importantly, in the first quarter (which ended March 31) Snap added 13 million daily active users. That was also an increase of 52 million from the same quarter a year ago. Its app and website are free to join and use. The company makes money by showing advertisements to those using its services.
In that regard, it had a solid quarter. Snap's revenue increased by 38% year over year to $1.06 billion. The total was slightly behind analyst estimates on Wall Street, which were looking for the social media company to report revenue of $1.07 billion in Q1.
SNAP Revenue (Quarterly) data by YCharts.
Snap's ability to generate revenue has been hurt by platform changes implemented by Apple that make it more challenging to deliver targeted advertising. Marketers prefer precision ads because they increase the return on investment. There is little sense in showing local Miami restaurant ads to a consumer in Seattle. Snap addressed this issue in its conference call following the Q1 earnings release:
"We continued to work through platform policy changes, which are primarily impacting direct-response advertising partners, and we believe that we are building effective measurement solutions for advertisers to prove the efficacy of their campaigns."
Adding to the challenges in the quarter were macroeconomic factors outside of Snap's control. Supply-chain shortages worldwide are decreasing advertiser demand. Why spend money on advertising if you can hardly keep up with organic customer purchasing?
Further, the Russian invasion of Ukraine is creating elevated uncertainty. Marketers tend to pull back on spending in volatile times and wait for more clarity on the business outlook.
What it could mean for Snap investors
Management expects the headwinds to persist into Q2. Snap guided investors to expect revenue growth between 20% and 25% in Q2. If it hits that target, it would be the lowest quarterly revenue growth since Q2 2020 -- another period of high uncertainty when advertisers pulled back on spending.
Near-term challenges aside, Snap has a long runway ahead. The company boasts less than 2% of the $210 billion spent in the U.S. on digital advertising and less than 1% of the $520 billion spent globally. And let's suppose the company can continue adding innovative features that attract hundreds of millions of daily active users. In that case, it will likely grow to take a larger share of the ad market over the next several years.
