Snap's (SNAP 6.70%) mobile app, Snapchat, has seen strong adoption by younger generations, and the pandemic only accelerated user engagement. Not surprisingly, the company has delivered impressive financial results in recent quarters. Can that trend continue?
In this Backstage Pass video, which aired Sept. 29, Motley Fool contributor Trevor Jennewine discusses the metrics investors need to know when Snap reports third-quarter earnings later this month. Snap is expected to report earnings on Oct. 21.
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Trevor Jennewine: Snap's primary product is Snapchat; although they do have Spectacles as well. But Snapchat is the mobile app, and if you're not familiar with it, it basically, it allows friends, families to connect visually. So, you can communicate with text messages, videos, you can connect with local brands, local businesses and brands, as well.
Basically, the business model is digital advertising, and they allow brands and marketers to, they can create sponsored lenses and filters, or they can display images and videos between other user-generated content. With any business where you're looking for digital ads, to monetize by digital ads, user engagement is getting important. I'm going to throw up some numbers real quick. I think some of these figures are pretty impressive.
Snapchat has 293 million daily active users. That pales in comparison to something like Facebook. But still a big number. But what impresses me is that these daily active users are opening the app 30 times every single day and they spend about 30 minutes engaged with content. I think that's impressive. I think the big number is over 75% of the 13 to 34 year-old US population uses Snapchat. If you look at 13-24 year-olds, it's over 90%. Just incredible penetration among younger generations. That's a very valuable demographic to advertisers. There's a lot of things Snap mentions that there's a lot of big decisions that are going on during the time of your life. You're buying your first car, you're going to college, getting your first job. Lots of decisions being made, lots of reasons to target that demographic with ads. I'm going to switch to my other slides here. But I think the company is --especially the attraction that they've gained with younger users -- is impressive.
This stock has been a market crusher over the last year. It's up over 200%. While the S&P 500 is up about 32% and they were reporting earnings on the 19th. Still a little while to go. To put some context behind the upcoming earnings, last quarter management reported revenue of 982 million and that was up over a 100%. The average revenue per user, which is basically the revenue divided by the user base, was up 76%. This helps you gauge how efficiently the company is monetizing its user base. They're not profitable on a GAAP basis and they're also free cash flow negative. They're looking at adjusted EBITDA, which is earnings before interest, taxes, depreciation, and amortization. That came in at, adjusted EBITDA was $117 million, up over 200% last quarter. The loss is narrowing, but like I mentioned, it's still free cash flow negative.
Turning to what I'm looking for in the third quarter, management is expecting revenue of $1.07 billion to $1.08 billion, which is up about 60%. Then adjusted EBITDA of a $120 million or so, up over a 100%. I will be looking at their daily active users to see how they can continue to grow that number. Other social platforms have stumbled. Pinterest saw some big headwinds in the most recent quarter two with their user base. Snap hasn't really seen the same thing. I will be looking to see if they maintain that momentum. I'll be looking at the average revenue per user just to see how effectively they're able to monetize that user base.
Then, management commentary on any upcoming products. The company has partnered with the likes of Walt Disney and Bumble recently, they're actually integrating their camera with applications off of the Snapchat platform. They just released or announced a pair of spectacles for creators that actually have, it's their first device with a built-in 3D augmented reality display. I'll be looking to see if there's any commentary around that. Then paying attention to the company's free cash flow on a quarterly basis, they did generate positive free cash flow, not the last quarter, but in the first quarter of 2021. Hopefully they can make that a more consistent thing and reach positive free cash flow on a trailing-12-month basis. That's where I'll be looking when the company reports earnings.
