Yahoo Finance

Snap topping earnings estimates for the third quarter. The social media company also authorizing a stock repurchase program of up to $500 million. Here with a closer look at the quarter, we have CFRA Research Senior Equity Analyst, Angela Zino, back with us to talk about what we heard from Snap. So, Snap seeming like maybe the sort of changes, the tweaking to its ad platform, to its platform generally, are sort of working, Angela. Is that the read through here?

It's a work in progress, right? So, you kind of look at the numbers here. Top line was fine, revenue grew 15%, expectations were about 14%. The surprise, and I think really kind of the nice beat, was on the adjusted EBITDA side of things was about $132 million. I think our expectation was around 90 million or so. So that, that was kind of, that was positive because um, they've kind of disappointed on that side of things, I'd say more often than not here over the last couple of quarters, and that's just because the AI investments are so um, you know, are just very heavy in nature. But you kind of look at the guidance, also a little bit more mixed in nature. Revenue, I think implies about at the midpoint about 13% growth. So it was a little bit below the 15% we were looking at, but on adjusted EBITDA basis again, it was midpoint's about $235 million, just slightly above where we were expected. So they're executing a little bit better on the bottom line. That's a good thing because that has kind of been an issue for Snap here over the last couple of quarters. I'd say on the top line side of things again, it's it's a bit mixed in nature. They're kind of working on um, improving kind of the, the direct response side of things on their, on their, uh, within kind of their ad platform, and then, you know, on, on the brand side of things, that continues to be, you know, a negative story. Declined again, I think this quarter on a year of year basis. But I think also a very big positive is kind of, um, what they're doing kind of on the subscription side of things. That is growing better than we would have ever imagined four or five quarters ago. I think, you know, 12 million subscribers now, it's about kind of eight, nine percent of their revenue. So that is kind of some nice diversification and kind of adding to that top line growth.

Angela, correct me if I'm wrong, I think you do have a buy on this one. So what, what are the catalysts ahead, Angela, you'd be looking for to move this one still higher?

Yeah, I mean, listen, Josh, I think, you know, we, we upgraded the stock to a buy early 2023. You know, the stock had cratered from, you know, $90 to $10 post pandemic, and it, it started leveling off and our view was kind of, it's kind of been beaten, um, you know, to a large degree kind of the valuation, you know, was starting to look a little bit attractive on our, our side of things. And the big reason we do have a buy recommendation is, you know, this is a company that is growing their active user base pretty quickly, still. I mean, it's growing about 9% of year, year of year basis. The guidance that they provided here for the December quarter was a little bit above our expectations, again, kind of growing nine, nine percent year of a year. So, you know, they're, they're growing the, the, the user base out there very nicely. Um, you know, they're, they're improving kind of the core side of things, the head count was down about, I think north of 10% on a year of year basis, but the infrastructure costs have gotten, um, you know, pretty elevated. I think, you know, you're looking at kind of a infrastructure cost per daily active user at about 83 to 85 cents here, run rate about those levels. About five quarters ago, we were talking closer to kind of a 58 cent or so level. So it's gone up significantly, but if they can start leveling that number off here, continue to grow the user base here and find ways to kind of monetize that platform a little bit better, then all of a sudden, you're talking about being able to scale that business. And that's something that they haven't been able to do here over the last couple years, but we're kind of optimistic that they can start controlling the costs, kind of given the run rate they're at right now.

Angela, you were talking earlier when we were talking about Alphabet about capital return plans. Well, here with Snap, we had a little capital return plan, um, $500 million buyback authorization. How much of a carrot is that for investors?

Not much, to be honest with you. I mean, I mean, if we're being honest about it, right? I, I think a lot of those kind of, when you kind of think about the, the, the buybacks, at least for this company, it's largely to offset, you know, some of the increases in terms of stock-based side of things. So, you know, this isn't a company like Apple, which has kind of reduced their, you know, their, the shares outstanding by north of 40% here over the last 12 years or so. So, you know, to us, that's not necessarily kind of an important part of the story, but um, yeah, I mean, at the end of the day, it's always good to see.

Yes. All right, Angela. Love it. Love the honesty. Good to see you and thanks a lot for your time today.

All right, thanks for having me.