Snap Inc (NYSE:SNAP) Stock A Bottomed Out Opportunity Or A Falling Knife?
Earlier this year, Snap Inc (NYSE:SNAP) went public via one of the most watched IPOs in recent times. In two days from now, the company is set to announce what could possibly be one of the more eagerly awaited set of results this season. To sum up quickly, Snap's second quarter earnings will be followed by a big lockup expiry three days later, which means that you should watch the release very carefully if you own or plan to own the stock. Snap is scheduled to report its second quarter results later this week, after the bell on 10th. Shares of Snap have come under tremendous pressure lately, following a host of negative developments. However, there have been a couple of positives as well. Snap stock seems to have stabilized for now. Yet, all eyes will on the company's second quarter earnings numbers. So, let's look at what The Street is expecting, followed by some of the other key numbers you should watch out for.
Snap Earnings - Analyst Estimates.
Snap reported its first set of results as a public company earlier this year. And things didn't start very well for the company. Snap missed analyst estimates on nearly every count, be it revenue, losses or user growth. Understandably, Snap shares tanked following the earnings release. Not very surprisingly, Snap's management also abstained from offering any guidance for the second quarter - not even in terms of top line numbers. Analysts seem to have tempered their expectations as well.
Analysts expect the company to report a revenue of just over $189 million. That compares with the ~$72 million Snap reported in the same quarter last year, translating to a massive YoY growth of 164%. Yet, the number falls short of the 286% growth registered during the first quarter. On the earnings front, analysts expect Snap to report a loss of 14 cents a share. Of course, it goes without saying that Snap will need to outdo these expectations to protect investors' wealth. However, even that may not be enough. When Snap finally reports its second quarter numbers, the one number that analysts and investors will be watching very closely will be Snap's user numbers. Last quarter, the platform announced that it had 166 million Daily Active Users (DAUs). And though this number fell just marginally short of analysts' estimates, the reaction on the street was anything but marginal.
WPP Plans To Increase Spends On Snap.
If Snap doesn't grow its user base substantially this quarter, it could reinforce concerns that the company is headed down the same road as Twitter. Eventually, a company that depends on advertising revenue can't afford to have a stagnant user base. The only thing that could work for Snap in the given circumstances is the fact that the advertisers are supposedly looking for alternatives to Facebook and Google, the two big names that dominate digital advertising. We recently saw WPP, one of the world's largest advertising companies committing to double its spends on Snapchat, from $100 million to about $200 million. While this is still relatively very small compared to the agency's spends on rival platforms, it's something.
However, with the likes of Amazon entering the fray, we may soon see the rise of a credible third player in this space. And we all know what happens when Amazon enters new businesses. Besides, if you look at WPP's contribution to Snap revenue, you'll find that it's very large. Analysts expect Snap to record $970 million in revenue for 2017, implying that WPP alone could potentially account for 20% of revenue. Such dependence leaves the company vulnerable to changes, if any, in WPP's future budgets and their allocations.
Watch Out For Hardware Commentary, But Stay Away From Snap Stock For Now.
The other aspect to watch out for will be Snap's commentary on hardware. There was talk about Snap's plans to acquire a selfie drone maker, which could be a good fit strategically, though no financial details have been divulged. Further, investors will want to know how the company's 'Spectacles' have progressed. Hardware is one source of revenue that's not dependant on Snapchat's user base, and offers hope in the long term. For now, investors might want to avoid Snap stock altogether, given that a huge lockup expiry is scheduled for 14th August, unless, of course, second quarter results are extraordinarily good. That apart, the fact that S&P won't include Snap shares in any of its key indices means that the stock loses out on support from ETFs that passively track indices. Now that passive investment is gaining traction, the exclusion by S&P is a blow to Snap shareholders.
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