Snap Beats Q1 Expectations But Withholds Guidance Amid Uncertainty

Snap Inc. reported better-than-expected first-quarter results on Tuesday, with revenue increasing 14% year-over-year to $1.36 billion, slightly above Wall Street's expectations of $1.35 billion. Despite the revenue beat, the company's shares dropped 13% in after-hours trading as Snap declined to provide Q2 guidance, citing macroeconomic uncertainties that could impact advertising demand.

The social media company reached a significant milestone by surpassing 900 million monthly active users globally in Q1. Additionally, Snapchat+ subscription service grew to nearly 15 million subscribers, contributing to a 75% year-over-year increase in "other revenue" to $152 million. However, the company still reported a loss of $139.6 million, or 8 cents per share, for the quarter.

In the earnings call, Derek Andersen, Snap's finance chief, noted that some advertisers have reported an impact from changes to the de minimis exemption scheduled to end this Friday. This loophole currently allows shipments under $800 to enter the U.S. duty-free. This regulatory change comes amid broader concerns about global trade policies.

Snap's ad revenues for the period rose 9% year over year to $1.21 billion, with growth mainly coming from direct response advertising. However, the company reported that brand-oriented advertising revenue dipped 3% from a year ago. This mixed performance in advertising segments suggests varying levels of confidence among different types of marketers.

Thomas Monteiro, senior analyst at Investing.com, noted that "Snap's inability to provide guidance should serve as a warning to global ad-dependent businesses, particularly those reliant on mid-sized companies' expansion plans." He added that while Q1 results were solid due to "the underlying still-resilient ad market," the company's caution reflects broader economic concerns affecting advertising spending.

"More than any other segment of the business spectrum, these companies are dampening their expansion plans, waiting for greater clarity on the macroeconomic outlook," Monteiro explained. "In this sense, Snap's comment on 'balancing the level of investment' going forward echoes what those investing in the company's ads are likewise thinking."

Monteiro highlighted Snap's "meaningful improvement on the margins front, cutting back a significant chunk of the cash burning from a year ago" through a "leaner, better-focused model." While he characterized the subscription model's growth as "a bit of a disappointment," he acknowledged it represents "a significant growth avenue" as the company moves toward profitability.

The uncertain outlook comes as many tech companies navigate President Trump's evolving trade policies, with concerns that global trade uncertainty might lead businesses to reduce spending. In its investor letter, Snap stated it had "experienced headwinds to start the current quarter" and believes it is "prudent to continue to balance our level of investment with realized revenue growth."

The company's cautious stance may signal broader trends in the digital advertising market. Meta is set to report its earnings on Wednesday, followed by Reddit on Thursday and Pinterest on May 8, potentially providing further insights into how macroeconomic factors are affecting the entire social media sector.