Shares of Snap (SNAP.N) surged nearly 25% in premarket trading on Friday, propelled by targeted ads and new features that propelled the photo messaging app’s parent company past Wall Street’s expectations for first-quarter revenue and user growth. Snap now anticipates second-quarter revenue to range between $1.23 billion and $1.26 billion, surpassing analysts’ forecasts of $1.22 billion, as per LSEG data.
Snap attributed its accelerated business growth to enhancements in its ad system and heightened demand for features aiding brands in boosting sales or website traffic.
Meanwhile, the social media platform Pinterest (PINS.N) rose by 4.4%, and Snap’s major competitor, Meta Platforms (META.O), edged 1.2% higher following a sharp decline on Thursday.
“Revenue per user saw a year-over-year increase for the first time since early 2022, showcasing both the strength in the broader advertising market and Snap’s efforts to reignite growth,” stated Morningstar analyst Michael Hodel.
Snapchat’s daily active users climbed to 422 million in the quarter, surpassing estimates of 419.6 million. The company reported first-quarter revenue growth of 21% to $1.2 billion, exceeding estimates of $1.12 billion.
Although 11 Wall Street brokerages raised their price targets on Snap’s shares post-results, most analysts expressed a desire for more consistent evidence of the company’s business improvement.
J.P. Morgan analysts remarked, “Snap’s results have historically been volatile, and we are cautious about drawing conclusions from one strong quarter.”
Currently, the average rating of 41 brokerages covering the stock stands at “hold.”
Snap’s stock has declined by about one-third this year as the company faced challenges in competing for advertising dollars against industry giants like Meta Platforms.
“While operating margins are gradually improving, driven by better advertising revenue and cost controls, management is still several years away from achieving operating profitability, a milestone we anticipate reaching by 2028,” added Hodel.
