SNAP: 1Q20 revenue increased 44% year-on-year to US$462 million, exceeding market expectations

According to SNAP's 1Q20 financial report, despite the impact of the epidemic, the company's revenue growth rate significantly exceeded expectations, increasing by 44% year-on-year to US$462 million, with daily active users reaching 229 million, and the company achieved positive operating cash flow of US$6 million for the first time.

The company doubled its investment in Discovery Channel content, with positive user data feedback and a 35% year-on-year increase in total time spent; the company's camera and augmented reality platforms continued to gain momentum, with more than 75% of users using the augmented reality feature every day.

Thanks to the doubling of DR advertising revenue, DR revenue now accounts for more than half of total revenue. More diversified revenue will also help the company resist the fluctuations in advertising revenue caused by the COVID-19 pandemic.

Revenue was 462 million yuan, up 44% year-on-year. The growth rate in the first two months was very fast, up 58%. Affected by the epidemic, the growth rate dropped to 25% in March. By region, North American revenue increased by 40% year-on-year. After two full quarters of adjustment of the international sales team, Europe increased by 61% year-on-year, and other regions increased by 49% year-on-year.

Direct response advertising revenue has doubled in the past two years, accounting for more than half of total revenue. The total number of ad impressions in the first quarter doubled year-on-year, while the cost of exposure decreased by 23%. While user growth brought inventory growth, the optimization of advertising effects alleviated the pressure of CPM decline.

DAU increased by 20% year-on-year to 229 million, with a net increase of 1.1 million in the first quarter. The most significant growth in DAU was in the last week of March. The company's DAU is the average DAU, so the epidemic has little impact on this number. The growth rate itself shows that DAU is accelerating. This growth mainly reflects that product improvements have brought higher user interaction and retention.

DAU growth is comprehensive, cross-platform, and cross-regional. The company expects Q2 DAU to be 239 million.

The gross profit margin was 47%, up 8 percentage points year-on-year. The infrastructure cost per daily active user was US$0.71, compared with US$0.72 in the same period last year. Doubling investment in high-quality content, the time users spent on the Discovery Channel increased by 35% year-on-year. In the first quarter, 91 new channels were added, covering a wider population, and the total daily time spent by users aged 35 watching Discovery content doubled year-on-year. In the first quarter, the time users spent on dramas, including scripted and unscripted series and daily news programs, doubled year-on-year. More than 60 dramas have a monthly audience of more than 10 million people. The company is pleased that it can expand gross profit margins while increasing investment in these contents.

Operating expenses in the first quarter were $298 million, up 20% year-on-year. The growth mainly reflects the company's continued investment in talent, mainly in engineering and commercialization teams. The company has also increased its investment in marketing expenses for advertisers and community users. There is a delay between these investments and outputs, but the company is pleased with the outputs it has seen so far.

Adjusted EBITDA was -$81 million, an increase of $41 million year-on-year, in line with the company's expectations. The company's adjusted EBITDA margin was -18% due to the company's long-term growth investment in the business and the impact of the COVID-19 pandemic.

In the first quarter, operating cash flow was positive for the first time, $6 million, an increase of $72 million year-on-year, and free cash flow was negative $5 million, an increase of $73 million. The company's cash and marketable securities were $2.1 billion, the same as the previous quarter.