Shapchat-parent Snap late Tuesday reported a 5% revenue increase for the third-quarter, its first quarterly rise this year. To Snap stock analysts, the earnings show efforts to bring advertisers back to Snapchat are paying off—but the company needs to show more progress toward profits.
On the stock market today, Snap stock is trading up a fraction at 9.76 in recent action. Shares swung wildly in after-hours trading following the report Tuesday, climbing as much as 20% before sinking to a 5% loss and ultimately ending flat.
The company posted an earnings beat along with the revenue increase. But Snap's note that some advertisers paused campaigns in response to the Israel-Hamas war appeared to spook some investors.
Snapchat Records 12% User Increase
For its third quarter ending Sept. 30, Snap reported adjusted earnings of 2 cents per share on revenue of $1.19 billion. Analysts expected the company to post an adjusted loss of 4 cents a share on sales of $1.11 billion, according to FactSet.
Still, the company posted a $368 million loss on the basis of generally accepted accounting principles, widening a $360 million GAAP loss from the same quarter last year.
Snap's revenue increased 5% from the same period last year, ending a series of back-to-back revenue drops.
Snapchat had 406 million daily active users as of September, up 12% from the same period last year. Analysts projected the company would reach 405 million monthly active users, according to FactSet.
Snap stock had gained 8.5% on the year before its earnings report Tuesday. But the company has struggled mightily since surging at the onset of the pandemic. Snap stock is off nearly 90% from a high point in September 2021.
SNAP Stock: A 'Show Me Story'
Chief Executive Evan Spiegel said in a letter to investors that the sales rebound was helped by the company's work "cultivating new sources of revenue to diversify our top-line growth to build a more resilient business."
That includes the Snapchat+ service, which Spiegel said reached more than 5 million subscribers during the quarter. Snap users can pay $3.99 per month to receive early access to new features and app updates through the service.
Spiegel said Snap is seeing faster growth for direct-response advertising, which prompt users to take an action such as buy a product or download an app.
Santa Monica, Calif.-based Snap is also seeing stronger growth outside the U.S. and Canada. North America revenue fell 3% year over year to $786.2 million. Meanwhile, European sales climbed 24% to $200 million and rest-of-world revenue jumped 30% to $202 million.
Wall Street ratings following the report remained mostly neutral. Evercore ISI analyst Mark Mahaney noted some encouraging signs advertiser retention improved and the time users spent watching the app's Spotlight feature was up 200% year-over-year.
Evercore removed Snap from its "Tactical Underperform" list following the report. But Mahaney maintained a neutral in-line rating on Snap, with a 10 price target that implies limited upside.
"Snap is a 'show-me' story," Mahaney wrote. "But a path toward several quarters of solid execution and clear traction toward profitability could well get us more constructive on the name."
War In Middle East Introduces Further Uncertainty
Further, Snap declined to provide formal guidance for the current quarter. The company said the onset of war in the Middle East makes it imprudent to provide formal guidance.
"We observed pauses in spending from a large number of primarily brand-oriented advertising campaigns immediately following the onset of the war in the Middle East, and this has been a headwind to revenue quarter-to-date," the company's earnings release said. "While some of these campaigns have now resumed, and the impact on our revenue has partially diminished, we continue to observe new pauses and the risk that these pauses could persist or increase in magnitude remains."
Still, the firm said an "internal forecast" predicts Q4 sales between $1.32 billion to $1.38 billion. Analysts polled by FactSet were looking for $1.34 billion.
SNAP Stock: Middling Strength Compared To Market
Several analysts raised their price targets and revenue estimates for Snap following the report. But Snap stock has just five buy calls from Wall Street analysts, according to FactSet, compared to 30 neutral ratings and 6 sell ratings.
Stifel, for instance, has a neutral hold rating with a 10 price target.
"While a return to top-line growth may signify that recent platform changes and investments may be paying off, we remain on the sidelines until we have a better handle on whether these under the hood changes will translate into consistent revenue growth," wrote Stifel analyst Mark Kelley in a client note Thursday night.
Prior to earnings, Snap carried a weak IBD Composite Rating of 59 out of 99, according to IBD Stock Checkup. Shares have a strong Relative Strength Rating of 42, meaning SNAP stock has outperformed just 42% of all stocks when it comes to 12-month performance.
