Snap, the parent company of Snapchat, beat Wall Street financial estimates for the first quarter — and added 15 million daily users for the app, which exceeded its previous guidance.
Snapchat had an average of 280 daily active users in Q1, up 22% from 235 million in the year-ago quarter (when year-over-year user growth was 20%). Snap had estimated that DAUs would reach 275 million in Q1.
For the month of March, the company said, over 125 million Snapchatters used Spotlight, the user-generated content section that presents videos in a personalized, TikTok-like feed and features a $1 million-plus creator payout pool. Also during the quarter, Snap launched Spotlight in three new countries — India, Mexico and Brazil — making it live in 14 countries.
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Snap’s revenue grew 66% to $770 million in Q1, while adjusted earnings before interest, tax, depreciation and amortization (EBITDA) came in at a loss of $2 million. On an adjusted diluted per-share basis, the company said it broke even for the period. On a GAAP basis, Snap narrowed its net loss to $287 million versus $306 million a year prior.
The first quarter represented Snap’s highest year-over-year revenue and DAU growth rates in more than three years. In addition — for the first time as a public company — Snap reported positive free cash flow, which was $126 million in Q1.
“We began 2021 by achieving our highest year-over-year revenue and daily active user growth rates in over three years during the quarter, and delivering positive free cash flow for the first time in Snap’s history as a public company,” CEO Evan Spiegel said in prepared remarks. “The strength of our business underscores our relentless focus on product innovation and is a testament to our team’s ability to execute well together over the long term.”
Spiegel credited Snapchat’s user growth with ongoing performance and stability improvements of its apps, specifically calling out the Android version. The company now has more users on Android than iOS, which “reflects the long-term value of the investment we made to rebuild our Android application,” the CEO said on the Q1 earnings call.
Snap said engagement with Spotlight rose significantly during the quarter: Daily video submissions increased by over 40% from January to March. The number of viewers watching Spotlight for at least 10 minutes per day grew by over 70% over that same time frame.
Snapchat users who submit videos to Spotlight, which debuted last November, are eligible to get a cut of more than $1 million in daily payouts, based on engagement with their content (with a minimum threshold of $250 per user). The company notes that “only a small percentage of creators” will receive payments.
On the original content front, Snap said it continues to see healthy growth in viewership of shows on Discover. The company said 25 channels now have a monthly audience of more than 20 million viewers each. It also said 20 million viewers have watched Snap Original series “Ryan Doesn’t Know” starring Ryan Reynolds since it debuted in late January.
Snapchat saw strong growth in 2020 amid the COVID-19 pandemic. Looking forward, “we are optimistic about the engagement trends we are seeing as the world is beginning to open up,” Spiegel said. For example, in late February in the U.S., Snapchat had “inflection points in key behaviors like Story posting and engagement with the Snap Map,” he said. In late March, the company saw a rise in the rate of new friend connections and bidirectional communication on Snapchat “as people have begun to socialize in broader groups,” Spiegel added.
For the current quarter, Snap estimates that DAU will “grow at a rate consistent with the prior quarter,” or around 22%, to reach 290 million in Q2. It projected Q2 revenue of $820 million-$840 million — implying year-over-year revenue growth of 80% to 85% — which “reflects our best current estimate of the potential impact of anticipated disruptions associated with the iOS platform changes,” CFO Derek Andersen said on the call.
The next update to Apple’s iOS 14, to be released next week, requires user opt-in to allow ad tracking. Andersen that it’s “not clear yet what the longer-term impact of the iOS platform changes may be for the topline momentum of our business, and this may not be clear until several months or more after the changes are implemented.”
At its first-ever analyst day in February, Snap said it expects to achieve revenue increases of at least 50% annually over the next several years, which Spiegel said doesn’t factor in growth assumptions for Snapchat’s user base.
Analysts on average expected Snap to report Q1 revenue of $743 million and an adjusted net loss of 5 cents per share. The company had already lowered expectations: In reporting fourth-quarter 2020 earnings, Snap projected Q1 revenue would be $720 million-$740 million.
