Snapchat parent Snap Inc. SNAP is scheduled to report third-quarter earnings on Thursday after the market closes. The company is coming off two tough quarters and the resultant sharp pullback in shares.
Snap’s earnings could give a foretaste of what to expect from ad-dependent social media platforms such as Meta Platforms Inc. META, Twitter Inc. TWTR, Pinterest Inc. PIN and potentially Alphabet Inc. GOOGL GOOG.
Key Metrics To Watch: Analysts, on average, expect Snap to report a loss of one cent per share for the third quarter, with estimates ranging between a loss of 10 cents and a profit of seven cents, according to Benzinga Pro data.
The consensus estimate models revenue of $1.14 billion for the quarter, up 6.5% from the $1.07 billion reported a year ago and almost flat with the previous quarter’s $1.111 billion.
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The company shied away from giving guidance for the quarter when it reported its second-quarter results, citing uncertainties, but hinted revenue will likely be sequentially flat. Later, in late August, in an investor presentation, it said year-over-year revenue growth through Aug. 29 was at 8%.
Snap missed Street expectations in the previous two quarters, with the shares plunging about 40% following its second-quarter results.
Traders may also focus on key metrics such as daily active users and average revenue per user. DAUs rose 18% year-over-year and 4.5% sequentially in the second quarter to 347 million. ARPU, meanwhile, fell 4% year-over-year to $3.20.
Source: Snap
Dwindling ad spending is the primary reason for the underperformance of ad-dependent platforms such as Snapchat. The tough economic environment has forced advertisers to scale back on spending, which, in turn, is pinching these companies.
Credit Suisse’s Stephen Ju noted that verticals where Snap has the greatest exposure — entertainment and commerce — underperformed the broader online ad environment during the quarter. Consumer packaged goods, tech/hardware, etc were squeezed by inflation and supply chain challenges, he added.
That said, digital ad trends generally have seen a sequential improvement in the third quarter, the analyst said, citing channel checks.
Snap is also constrained by the privacy policy changes Apple Inc; AAPL began implementing in 2021. These changes make it difficult for advertisers to measure and manage their ad campaigns for iOS.
Snap Mends Its Ways: Snap is striving to make up for the topline weakness with operational discipline.
The company said in the August investor update that it is eliminating 20% of its global headcount and will likely incur transition costs of about $110 million to $175 million related to the action. About $95 million to $135 million of that were to be recorded in the third quarter.
Snap also announced the creation of a new role of chief operating officer and the appointment of insider Jerry Hunter to the position. It even announced the departure of its chief business officer, Jeremi Gorman.
Forward Outlook: Snap’s real challenge is 2023, Credit Suisse said. The muted expectation is based on initial feelers for a sharp deceleration in aggregate online/digital budget growth and the advertiser behavior of rotating budgets into larger platforms amid the macro uncertainties, Credit Suisse added.
The firm, therefore, reduced its 2023 and 2024 revenue growth estimates for Snap from 12% and 18%, respectively, to 6% and 12%.
Credit Suisse remained Overweight on shares, citing international monetization improvements, potential for continued audience expansion and monetization from other engagement surfaces, including Maps and Spotlight, along with longer-term advertiser adoption of AR.
The Snap Stock: The average analysts’ price target for the stock is $14.10, representing roughly 30% potential upside, according to TipRanks. Out of the 34 analysts rating the stock, 23 remain on the sidelines, nine have Buy rating and the remaining two are bearish.
Year-to-date, Snap shares have lost about 77% and are trading off their 52-week low of $9.34 reached in late July. Technically, for a sustainable recovery to kick in, the stock has to convincingly break above the upper resistance of around $12.5.
Price Action: Snap shares were trading 1.57% higher at $11.03 in premarket trading.
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