After Facebook reported dismal Q4 financials earlier this week, many on the street didn’t have high hopes for Snap. That’s because Snapchat, like Facebook, relies on ad revenue to fund its coffers. Facebook saw a massive impact on its ad revenue, in part due to Apple’s iOS changes, which led to its stock getting obliterated yesterday. Competition from TikTok was also a factor.
On the same day Facebook’s stock fell off a cliff, Snap’s stock was down as much as 23% before its own Q4 earnings call. But yesterday’s call ended up being better than investors could have ever hoped—and it’s sent Snap stock surging nearly 50% in pre-market trading as of the time of this writing. Here’s why:
- Snap had its first profitable quarter: This is the biggest reason for the surge. As Barrons reports, Snap had its first profitable quarter ever based on net income. This may seem small, but Snap made 1 cent per share, for a total of $22.6 million in net income for the quarter. That net income profit is a first for the company and well above the net loss of 9 cents per share the street was expecting.
- TikTok doesn’t appear as big a threat: Facebook called out TikTok as a major threat to its platform, and in Q4 Facebook lost users for the first time in its history. But that’s not true for Snap. Snapchat actually gained 13 million users in Q4, suggesting TikTok may not be as big a threat to its platform.
- Apple’s privacy changes aren’t as bad for Snap as expected: Both Facebook and Snap called out Apple’s privacy changes to its iOS platform as a headwind to advertising revenues, but for Snap, the company revealed Apple’s changes aren’t as impactful as feared. On its financial call, Snap CFO Derek Anderson said the recovery to Apple’s changes was “quicker than we anticipated,” according to CNBC. And alluding to Facebook’s struggles with Apple’s changes, Anderson added such changes are “likely to be experienced differently for our business than perhaps for others.”
- Its guidance was better than expected: Finally, unlike Facebook, Snap’s Q1 2022 guidance was better than expected. It forecast Q1 revenue of $1.03 billion to $1.08 billion (over the street’s $1.01 billion expectations) and the addition of another 9 to 11 million users.