Though Snap (SNAP 27.63%) missed analysts' consensus forecasts for revenue and earnings per share last week when it reported its first-quarter results, the miss wasn't bad enough to spook investors. After all, investors seem to be pricing in a challenging operating environment; many growth stocks like Snap have fallen sharply in 2022 as investors brace themselves for tough year-ago comparisons and an uncertain economy amid continued supply chain issues and elevated geopolitical tensions.
It's not surprising that Snap stock hasn't sold off since the company's earnings report. Its results were actually quite solid in light of the macro backdrop.
Here's a closer look at some of the key takeaways from Snap's first-quarter results.
1. Decelerating but robust revenue growth
After growing its revenue 42% in Q4 as advertising spend continued to rebound from a contraction in 2020, Snap management knew the social media company's top line would decelerate in Q1. The company guided for revenue during the first quarter of 2022 to increase 33.8% to 40.3%. Impressively, the company's reported 38% revenue growth in Q1 was still well within this expected range despite continued macroeconomic uncertainty.
While revenue was in line with management's guidance, it was slightly below analysts' average forecast. On average, analysts had expected revenue of $1.07 billion. Actual revenue for the quarter was $1.06 billion.
2. Strong user growth
It's also worth noting that Snap actually beat expectations on one important metric. The company's daily active users -- a measure of the number of highly engaged users on its platform -- increased 18% year over year to 332 million. Analysts, on average, had expected two million fewer daily active users in Q1.
Management called out strong growth in users in its Rest of World segment, which excludes North America and Europe. The company added 10 million users in this geographic segment. Going forward, management thinks there remains significant opportunity to grow its users in this important and large geographic market.
Image source: Getty Images.
3. A challenging macro environment
Snap said its primary negative headwind to client demand is the macroeconomic environment. Specifically, management said that continued supply chain disruptions, rising interest rates, and geopolitical risks amid the war in Ukraine are chief concerns weighing on companies' advertising budgets.
To this end, management explained in its first-quarter earnings call that growth in Q2 has been slower to date:
We believe the impact of the war in Ukraine on input cost, marketing budgets, and overall economic confidence has been significant and that it is difficult to predict its impact on a forward-looking basis. Given the uncertainty caused by these challenging circumstances, we have opted to share that our growth rate thus far in Q2 is approximately 30% year over year or just below the approximately 32% growth rate we observed following the invasion of Ukraine in Q1. That said, we are concerned that the operating environment ahead could be even more challenging, leading to further campaign pauses or advertiser budget reductions.
This backdrop informed the management's guidance for second-quarter revenue growth to decelerate further. Management said it expected its second-quarter revenue to grow at a year-over-year rate between 20% and 25%. This expectation for slower growth, however, also takes into account an extremely tough year-ago comparison, when revenue skyrocketed 116% year over year.
Given Snap's tough year-ago comparisons and the macro challenges, it is facing, the company's business is performing extremely well. Investors should be pleased with the company's performance.
