Last Thursday, Snap Inc (NYSE:SNAP) reported its first quarter financials, showing that the improvements it made to its advertising system showed results faster than anticipated. Upon the earnings beat, strong revenue growth as well as the rise of daily active users to 422 million, shares surged 21% during after-hours trading.

First quarter results show Snap's efforts to rebuild its ad business are working.

For the first three months of the year, Snapchat-parent reported revenue rose 21% to $1.19 billion, surpassing LSEG's estimate of $1.12 billion. More importantly, Snap finally reported double digit sales growth, after six consecutive quarters of single-digit growth and declines. Advertising brought in $1.11 billion to the revenue table, while Other Revenue grew 194% YoY to $87 million, fueled by more than 9 million Snapchat+ subscribers. As a result, adjusted EBITDA of $46 million surpassed expectations as StreetAccount expected a loss of $68 million. Adjusted EPS amounted to 3 cents, also greatly surpassing LSEG's estimate of a 5 cents loss. Net loss narrowed to $305.1 million or 19 cent loss per share.

Second quarter guidance also surpassed estimates

For the current quarter, Snap guided for revenue in the between $1.23 billion and $1.26 billion, while StreetAccount expected $1.22 billion. Its adjusted EBITDA outlook is between $15 million and $45 million, also greatly surpassing Wall Street's average expectation of $15.5 million.

Social media companies are benefiting from a stabilizing economy.

Last week, Facebook-parent, Meta Platforms (NASDAQ:META), surpassed both top and bottom line analyst estimates with its latest earnings report. However, Meta shares plunged due to a weak revenue guidance. For its first quarter, Meta reported its revenue rose 27% to $28.65 billion, which is its fastest growth rate since 2021, with net income more than doubling to $12.37 billion as besides the revenue acceleration, it did a great job in lowering sales and marketing costs by 16% YoY. Ad business, that makes most of Meta's revenue, rose as much as 27% to $35.64 billion.However, Meta also increased its capital expenditures forecast due to ramping up AI investments. It guided for the 2024 capital expenditures in the range between $35 billion and $40 billion. Although Meta still hasn't delivered its metaverse promise, its track record when it comes to social media and ads is as strong as it gets.

Although Snap is still far behind Meta, both in terms of size and growth, they are facing similar challenges and after all, Snap is targeting a narrower niche of younger social media users. At the end of the day, Snap showed its business is improving faster than expected, providing hope that the Snapchat parent is finally on the right track to monetize its value proposition.

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