Snap Inc's (SNAP) Revenue Forecast Slashed, Shares Fall

As per research firm, eMarketer, Snap Inc.’s SNAP ad revenues for the current year are projected to be $770 million, $30 million less than the earlier estimate (Sep 2016), due to “higher-than-estimated revenue sharing with partners.” Despite the slash, revenues are still expected to be up 157.8% from last year.

Following the news, Snap shares were down 2.4% in the session before closing at $20.58. Though Snap had a spectacular debut, rising 44% on the first day of trading, it has not been able to keep up the momentum. In the last few days, shares fell below its IPO price amid bearish reports by analysts.

Citing instances of Twitter TWTR and many others, analysts believe that Snap “will follow a pattern of hot, then cooling, tech IPOs.”

They argue that Snap has already started seeing its average daily user growth rate slow down.  Plus, it is yet to make profits. Though the company’s revenues are on the rise, losses are ballooning. Per reports, in 2016, Snap’s revenues of $404.5 million were nearly six times higher than 2015 revenues but net loss for the year increased 38% to $514.6 million.

Moreover, since Snapchat has just one source of revenues i.e., advertising, which only began in Oct 2016, it may be a concern for investors. Also, it attracts a particular segment of the demography.

Analysts argue that teens are inclined to sudden changes in preferences. Media reports have quoted Snap “admitting” that increasing competition from big players like Facebook Inc. FB, which have better resources, are a big threat as they can easily lure users to their platform.At present, Facebook has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 Plus, Snap’s valuation is nosebleed. At nearly 60 times its revenues, analysts remain wary as it is too high, given its existing and future growth prospects. 

Other Snippets from the Report

In its report, eMarketer further added that U.S digital ad spending will grow 15.9% to $83 billion with Alphabet’s GOOGL Google accounting for 40.7% of the ad revenues. Also, Google will lead search market revenues with 78% share of the domestic search ad revenues. For the year, Google’s search revenues are expected to be up 16% to $28.55 billion.

On the other hand, Facebook’s share of the total U.S ad digital spend will be much less than that of Google. However, Facebook continues to net the biggest domestic revenue share of the display business. In 2017, Facebook’s display business will likely grow 32.1% to $16.33 billion, representing 39.1% of the total display market. Instagram has emerged as an important cash cow and will contribute 20% of Facebook’s U.S. mobile revenue as against 15% reported last year.

While Snapchat is still a very small player with just 1.3% revenue share of the total domestic mobile ad market expected this year, the same is expected to grow to 2.7% in 2019, per eMarketer.

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