Snap Inc (NYSE:SNAP) shares surged 14% following the social media company’s second quarter results, after revenue and adjusted earnings came in ahead of Wall Street expectations and the company provided an upbeat outlook for the third quarter.
Snap reported revenue of $1.60 billion for the second quarter, above the $1.54 billion analyst consensus, while its net loss of $0.10 per share was narrower than the expected $0.12 loss.
Jefferies analysts wrote that the results provided “early evidence of the ads business improving,” pointing to acceleration in advertising revenue growth to 9% year over year from 3% in the first quarter.
The improvement was driven by better trends among large North American advertisers, World Cup-related demand, adoption of Smart Campaigns and strength among small and medium-sized businesses.
The analysts noted that the acceleration came against an easier comparison, however, and wrote that sustained momentum in the second half of the year will be important for a meaningful re-rating of the stock.
Snap also reported 493 million daily active users in the quarter, above the 488 million expected by analysts. North American daily active users were stable sequentially after declining in each of the prior two quarters.
For the third quarter, Snap guided for revenue growth of 13% to 15% year over year, with the midpoint ahead of Wall Street’s 13% estimate. Jefferies wrote that the outlook appeared achievable, while noting that the guidance implies advertising growth below 10% sequentially.
The analysts also highlighted higher infrastructure costs as an area to watch, with Snap raising its full-year infrastructure cost guidance by about $50 million to $1.65 billion to $1.70 billion, reflecting increased investment in artificial intelligence and machine learning. The company expects savings related to its workforce reduction to have a greater impact in the second half.
Jefferies reiterated its ‘Buy’ rating on Snap and raised its price target to $6 from $5.50, citing the stronger second quarter and third quarter revenue outlook. The analysts raised their 2027 revenue and EBITDA estimates by 2% and 1%, respectively.