Snap stock jumps as World Cup ads, AI tools drive earnings beat and strong outlook

Snap delivered better-than-expected second-quarter results on Monday, helped by higher advertising spending during the FIFA World Cup and improving demand from large advertisers in North America, while also issuing a stronger-than-expected revenue forecast for the current quarter.

The upbeat results sent shares of the social media company more than 7% higher in extended trading.

The company has been investing in artificial intelligence-powered advertising tools to improve automated bidding, budgeting and audience targeting, while also focusing on direct-response advertising to strengthen its position in an increasingly competitive digital advertising market.

Improving advertiser demand

Chief Executive Officer Evan Spiegel said the company's efforts to improve its advertising products and sales strategy had started delivering results.

"After several quarters of improving our ad products and go-to-market approach, we saw better momentum with large advertisers in North America," Spiegel said.

"The World Cup-related spending contributed during the quarter, alongside continued strength among small- and medium-sized businesses."

Snap reported second-quarter revenue of $1.60 billion, up about 19% from a year earlier and above analysts' estimates of $1.54 billion, according to data compiled by LSEG.

The company's net loss narrowed to $164 million from $262.6 million, or 16 cents per share, a year ago.

Adjusted earnings came in at $250 million, comfortably ahead of the $192 million expected by analysts, according to StreetAccount.

The stronger performance follows the company's May earnings update, when Snap said large advertisers in North America remained a drag on advertising growth but noted that it was beginning to see encouraging signs of improvement.

Guidance tops expectations

Snap projected third-quarter revenue between $1.70 billion and $1.74 billion, with the midpoint slightly above analysts' expectations of $1.70 billion.

It also forecast adjusted earnings before interest, taxes, depreciation and amortisation of between $300 million and $350 million, compared with analysts' estimate of $329.9 million.

The company said it continues to invest in artificial intelligence and machine-learning infrastructure to support future revenue growth.

It raised its full-year infrastructure cost guidance by $50 million to a range of $1.65 billion to $1.7 billion.

Competition remains intense

Despite the stronger financial performance, Snap continues to face stiff competition from larger rivals such as Meta Platforms, the parent company of Facebook and Instagram.

Snap shares remain down around 37% this year.

Global daily active users rose about 5% year over year to 493 million during the three months ended June 30, maintaining the same pace of growth seen in the previous two quarters.

However, user trends remained mixed across regions.

Daily active users in North America declined nearly 7% year over year to 92 million and were flat compared with the first quarter. Europe also recorded a roughly 2% decline in daily active users.

On the earnings call, Spiegel pointed to improvements in Snap's core messaging experience and the continued expansion of Spotlight, the company's short-video platform, as key drivers of overall user growth.

Subscription and hardware plans

Snap's "other revenue" segment, which includes its Snapchat+ subscription service, rose 85% from a year earlier to $316 million during the quarter, highlighting the company's efforts to diversify revenue beyond advertising.

The company also said it continues to monitor the evolving legal and regulatory landscape, which could materially affect its business.

Snap plans to provide more details about its augmented reality glasses, Specs, at a launch event in Los Angeles on September 16. The consumer version of the device was unveiled in June with a starting price of $2,195.

Snap beats Q2 revenue estimates on World Cup ad spending and stronger North America demand, while AI-powered ad tools help lift its third-quarter outlook.