Snap Inc. Awaits Improved Q3 Results to Catch Up with Peers

Snap Inc., the parent company of Snapchat, is set to unveil its third-quarter results, which will shed light on whether the company has managed to bounce back in line with its social-media competitors.

Wall Street awaits the earnings report, due after the close of trading on Tuesday, to see if Snap can achieve flat or increased revenue compared to the same period last year. This comes after two consecutive quarters of revenue decline. While analysts predict a slight decline in revenue to $1.11 billion from $1.13 billion, there is hope that Snap can deliver better-than-expected results.

Key Points to Look Out For

Earnings

The FactSet consensus estimates a loss of 24 cents per share on a GAAP basis, compared to a loss of 22 cents per share in the year-earlier period.

Revenue

Analysts anticipate $1.11 billion in revenue, down from $1.13 billion in the previous year’s quarter. The company’s outlook indicated a range of $1.07 billion to $1.13 billion in revenue.

Daily Active Users

FactSet analysts project that Snap had 406 million daily active users in Q3. The company’s financial guidance for the period assumed a range of 405 million to 406 million daily active users.

Stock Movement

Snap shares have experienced double-digit percentage declines following each of the last five earnings reports. However, despite this volatility, the stock has managed to gain 6% year-to-date.

Analyst Opinions

Snap Facing Challenges in Domestic and International Downloads

Bernstein analyst Mark Shmulik reports that Snap experienced a decline of 9% year-on-year in domestic downloads and a 2% decline in international downloads, with India being the leading contributor to the international decline. The time spent on the platform also seems to be decreasing domestically. However, there is hope for increased engagement due to the growing number of creators posting on Snapchat.

User Engagement Vital for Snap’s Future Success

Evercore ISI analyst Mark Mahaney highlights the importance of user engagement for Snap’s future success. According to their time-spent tracker, user engagement on the platform remains soft. To achieve a fundamental change, Snap needs to see a significant boost in advertising spend. While there are signs of improvement in the spending environment for social media platforms in Q3 and Q4, advertiser sentiment towards Snap remains muted. Therefore, Evercore ISI rates the stock as Tactical Underperform.

Uncertainty Surrounding Snap’s Margins and Revenue Growth

RBC Capital Markets analyst Brad Erickson points out the uncertainty regarding Snap’s infrastructure spending and its impact on margins. As management has stated that infrastructure spending will depend on revenue growth, investors are contemplating the possibility of gross margins reaching 50% or lower. There is also a lack of consensus among investors regarding the projected gross margins for 2024 and, consequently, earnings before interest, taxes, depreciation, and amortization (EBITDA) for that period.