For the fourth quarter of 2023, Snap (SNAP) reported earnings of 8 cents per share, surpassing the Zacks Consensus Estimate by 14.29%, despite a 42.9% year-over-year decline. Revenues also exceeded expectations, rising 4.7% year over year to $1.36 billion. The top-line growth is attributed to the company’s strategic focus on investing in the direct-response business, delivering increased ad spend returns for advertising partners.
Quarterly Performance Insights
While brand-oriented advertising business declined by 3% year over year, the direct-response advertising business showed a 3% year-over-year growth. Additionally, other revenues, primarily driven by Snapchat+, surged more than 200% year over year in the fourth quarter. Snap’s daily active users (DAU) at the end of the quarter totaled 414 million, marking a 10.4% yearly increase. The platform added 39 million DAU year over year, with monthly active users (MAU) surpassing 800 million and growing by more than 8%.
Regionally, North America’s revenues rose 2.2% to $899.5 million, accounting for 66.1% of total revenues, while European revenues increased by 9% to $238.3 million. Rest of the World (ROW) revenues stood at $223.5 million, reflecting an 11.3% year-over-year growth. Notably, the average revenue per user (ARPU) decreased by 5.2% year over year to $3.29. While North America and Europe saw ARPU increases of 2.2% and 4.6% respectively, ROW’s ARPU declined by 6.4%.
Engagement and Innovation
In the fourth quarter, North America’s DAU remained constant at 100 million, Europe’s DAU increased by 4.3% to 96 million, and ROW’s DAU grew by 11.3% to 218 million. Time spent watching content globally also increased year over year, mainly due to the strong performance of Snap’s Spotlight feature – witnessing a time spent growth of over 175%. Additionally, creators’ engagement rose, with Snap Stars’ public stories posting a staggering 125% year-over-year increase.
Moreover, Snap struck a new partnership with Spotify in the U.S., introducing shorter-form highlights from Spotify’s podcasts to the platform. Diversifying its revenue streams, Snapchat+ garnered over seven million subscribers in the reported quarter. Furthermore, the company rolled out new AI-powered features for Snapchat+ subscribers, offering them the ability to enhance their Snaps and create AI-generated images based on a text prompt.
Operational and Financial Highlights
The adjusted cost of revenues grew by 31.4% year over year to $615 million, while adjusted operating expenses totaled $587 million, marking a 2% decline year over year. Although sales and marketing expenses decreased by 11.1% year over year to $193 million, general and administrative expenses increased by 11.3% to $168 million. Research and development expenses contracted by 2.2% to $226 million. Adjusted EBITDA stood at $159.1 million, reflecting a 31.8% decline from the year-ago quarter.
Financial Position
As of December 31, 2023, Snap held cash and cash equivalents plus marketable securities worth $3.5 billion, compared to $3.6 billion from the end of the previous quarter. Operating cash flow for Q4 2023 increased to $164.5 million, compared to $125.2 million in the year-ago quarter. Snap also repurchased 18.4 million shares at a total cost of $189 million, with an average repurchase price of $10.28.
Investors’ Outlook
Snap is currently ranked #3 (Hold) by Zacks. The company’s stock has experienced a 29.6% decrease compared to the Computer and Technology sector’s return of 5.9% year to date. Investors seeking exposure to the broader Computer & Technology sector may consider better-ranked stocks such as Arista Networks (ANET) and Semtech (SMTC), both currently carrying a Zacks Rank #1 (Strong Buy).
Arista Networks has witnessed a 110.5% surge in share price over the past year, with a projected long-term earnings growth rate of 19.77%. Conversely, Semtech has experienced a 42.8% decrease in its stock price over the last year, with a projected long-term earnings growth rate of 15%.
Finally, investors have the opportunity to explore market insights and top stock recommendations through Zacks Investment Research, which may offer comprehensive guidance for future investment decisions.
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