Snap Inc. (NYSE:SNAP) posted first-quarter results that topped analyst estimates, but the stock slid after the company warned that advertising revenue was pressured by the conflict in the Middle East and softer growth trends in North America. Its second-quarter revenue forecast also came in largely in line with Wall Street expectations.
The company additionally revealed it had ended its $400 million agreement with artificial intelligence startup Perplexity.
Shares of Snap dropped nearly 10% in premarket trading Thursday.
Revenue growth improves despite advertising pressures
The social media platform reported a first-quarter loss of -$0.05 per share, better than analyst projections of -$0.08 per share.
Revenue rose 12% year-over-year to $1.53 billion, narrowly exceeding the consensus estimate of $1.52 billion. The company’s top-line growth accelerated compared with prior quarters as it returned to growth in daily active users while also improving margins.
Advertising revenue increased 3% to $1.24 billion during the quarter, supported by strength in direct response advertising. However, Snap said the conflict in the Middle East reduced revenue by approximately $20 million to $25 million in March alone and cautioned that geopolitical uncertainty could continue to weigh on results.
Adjusted EBITDA reached $233.3 million, ahead of analyst expectations of $212 million.
Analysts see early signs of improvement
“SNAP has been through multiple years of struggling to get its ad business back to industry average growth, and while it continues to trail, there are greenshoots appearing,” Barclays analyst Ross Sandler said in a note.
“Admittedly, some of the 2Q uptick is from easy comps around the ad auction issues a year ago, but there is also underlying improvement,” he added.
Wolfe Research analyst Shweta Khajuria said Snap’s 5% growth in daily active users during the quarter was “overshadowed by macro uncertainty.”
“That said, while the Perplexity partnership won’t happen, we note that SNAP has yet to rule out other AI LLMs or agents partnerships to serve as distribution for the platform,” she said.
Guidance disappoints investors
Investor sentiment weakened after Snap issued second-quarter revenue guidance in the range of $1.52 billion to $1.55 billion. The midpoint of $1.535 billion came in slightly below the analyst consensus forecast of $1.54 billion.
The company said its outlook excludes any contribution from Perplexity following the mutually agreed termination of the partnership during the first quarter and also reflects ongoing weakness tied to conditions in the Middle East.
“In Q1, we returned to growth in daily active users, accelerated revenue growth, expanded margins, and generated strong free cash flow,” said CEO Evan Spiegel. “We remain focused on disciplined execution as we invest in Specs and our long-term opportunity in intelligent eyewear.”
User growth and cash flow strengthen
Snap reported adjusted EBITDA of $233 million, more than double the $108 million posted a year earlier. Free cash flow climbed 150% year-over-year to $286 million from $114 million.
Global daily active users increased 5% from the prior year to 483 million, while monthly active users rose to 956 million.
For the second quarter, the company expects adjusted EBITDA between $175 million and $200 million. Snap also anticipates pre-tax restructuring charges ranging from $95 million to $130 million tied to a recent organizational overhaul, with most of those costs expected to be recognized during the second quarter.
More about Snap
Snap is a social media and technology company best known for Snapchat, its multimedia messaging platform. The company generates most of its revenue through digital advertising and has increasingly focused on augmented reality, artificial intelligence integrations, and wearable technology initiatives such as its Specs smart glasses platform.