Snap’s Q1 Results Were Much Better Than They Looked

SNAP stock - Snap’s Q1 Results Were Much Better Than They Looked

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Snap’s (NYSE:SNAP) first-quarter results were much better than the headline numbers indicate. Snapchat’s user base continues to rapidly increase, and its innovations are still resonating with its users. Because of these points, I remain bullish on the long-term outlook of SNAP stock and still urge investors to buy its shares.

Snap’s net loss in Q1 climbed to $360 million, up from $287 million during the same period a year earlier. And the company’s earnings per share, excluding certain items, came in at 2 cents, 3 cents below analysts’ average estimate.

Those numbers sound very negative. But $38 million of the net loss was caused by depreciation and amortization, i.e. declines in the value of the company’s tangible assets and intellectual property. And the company’s other expense category came in at $77 million. That figure may represent the cost of the company’s acquisition of “neurotech company” NextMind in March. Of course, acquisition costs do not reflect the profitability of Snap’s operations.

Additionally, Snap paid $8.5 million of income tax, up from $1.4 million during the same period a year earlier, while its research and development (R&D) costs jumped to $455.6 million from $348.6 million during the same period a year earlier. Often, tech companies’ R&D costs tend to be elevated for a few quarters before returning to previous levels.

If we subtract the depreciation and amortization costs, the “other expense” outlays, and income tax, along with the year-over-year increase in Snap’s R&D, the company’s loss would fall to about $130 million. Also worth noting is that the company’s operating loss actually declined last quarter to $271.5 million from $303.6 million during the same period a year earlier.

And on the top-line front, the company’s revenue jumped to $1.06 billion from $770 million in the year-ago quarter.

On April 29, Snap reported that its daily active users and its monthly users had both increased 20% YOY to 330 million and 600 million, respectively. Last quarter, the company added 13 million daily active users.  And from January 2020 to the end of last month, 250 million people had used Snap’s “shopping-based Lens,” the company reported.

As I pointed out in my previous column on SNAP stock, “During Snap’s fourth-quarter earnings call, held on Feb. 3, the company’s CEO, Evan Spiegel, said, ‘Over 200 million people engage with augmented reality on Snapchat every day, and our community now plays with AR Lenses an average of more than six billion times per day.’” On the company’s Q1 earnings call, which took place on April 21, Spiegel noted that the number had jumped 25% versus the previous quarter to 250 million. Additionally,  in Q1, the “total daily time spent by Snapchatters 25 and older” watching the company’s shows soared 25% YOY.

Snap’s strong Q1 results and the success of its innovations — along with the recent, sharp declines of SNAP stock —  continue to make the shares a buy for long-term investors.

On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guideline

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been PLUG, XOM and solar stocks. You can reach him on Stocktwits at @larryramer.

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