Snap Earnings Fall Short. The Stock Is Surging.

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Snap reported a wider-than-expected net loss in the first quarter and user growth that was in line with expectations. Shares popped in extended trading following an initial tumble.

The social media firm reported a net loss of 22 cents a share, compared to Wall Street’s consensus estimate of 17 cents a share, according to FactSet. Revenue of $1.06 billion was mostly in line with expectations. Daily active users jumped 18% year over year to 332 million, compared to consensus expectations for 331 million.

Snap (ticker: SNAP) shares fell as much as 7% initially following the release, but have since rebounded. The stock was up 4.8% in the after-hours session.

CEO Evan Spiegel said in the earnings release that the results reflect underlying momentum despite a challenging operating environment.

“We remain focused on providing value for our growing community, delivering ROI for our advertising partners, and investing against our enormous opportunity in augmented reality,” he said.

The company expects revenue growth between 20% and 25% for the second quarter.

With the report,

Snap kicked off earnings season for the social media industry. The numbers could offer indications of what to expect from reports later this month from digital advertising-focused firms like Facebook-parent

Meta Platforms (FB).

Shares of Meta (FB) were up 2.1% following Snap’s release, while

Twitter (TWTR) advanced 1.1%. The last time Snap reported results ahead of Meta and Twitter was in October. Those numbers showed that Wall Street had underestimated the financial hit the firm took from changes to

Apple’s (AAPL) operating system for mobile devices that required apps to ask users for permission to track what other sites they visited.

The shift, intended to enhance privacy, made it harder for social media firms like Snap to track whether advertisements prompt a desired action by consumers. Snap served as a bellwether, sending shares of Meta falling, too.

On the flip side, Meta’s disappointing fourth-quarter results in February prompted a slide for Snap, but the stock bounced back when its own results were better than feared. Investors may want to keep that in mind if social media stocks react—up or down—to Snap’s report.

Rosenblatt Securities analyst Barton Crockett, who launched coverage of Snap stock with a Buy rating and a $49 price target earlier this week, wrote in a note to clients that Snap has made progress adjusting to Apple’s changes. The stock closed at $30.76 on Wednesday.

“Snap was very active in migrating advertisers to its own tools to mitigate the loss of targeting capabilities from Apple’s new privacy stance,” Crockett wrote. “Snap said that 75% of its direct response advertisers were now using its tools. Much of that was recently accomplished, and it takes a few weeks of testing before advertisers gain comfort. So the transition is likely to be more helpful over time.”

BofA Global Research analyst Justin Post noted earlier this week that the stock has been under pressure from the war in Ukraine, competition from TikTok, and concerns about consumer spending if the U.S. enters a recession. He’s still bullish on the stock, pointing to opportunities for the firm to post stable growth in the second half of 2022.

Write to Connor Smith at [email protected]