Stocks

Snap Earnings Preview: Looking For Losses To Improve

Snap Inc (NYSE:SNAP) is set to release its Q4 2017 earnings results today after closing bell. The Snap earnings release is expected to reveal adjusted losses of 14 cents per share on $252.7 million in revenue. There is no year-ago comparable period because this is the fourth Snap earnings release since the company went public.

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Snap earnings for Q4 2017: what to expect

Snap is expected to report average revenue of about $1.36 per user, according to MarketWatch. Of the social media firm‘s total revenue, analysts expect $198.1 million to come from North America, $32.4 million from Europe, and $18 million from the Rest of the World.

Stifel recently transferred coverage of Snap stock from analyst Scott Devitt to John Egbert, but the firm retained its Hold rating and $13 price target in the transfer. Although Egbert feels that his 4Q 2017 earnings estimates can be achieved, he still believes the Street’s revenue estimates for this year and next are “unrealistically high.”

He pegs Snap’s adjusted EBITDA loss at $156 million, which is better than the consensus at a loss of $187 million. However, he also pointed out that the estimates reading into that consensus vary widely from a loss of $129 million to a loss of $271 million. Snap did report an adjusted EBITDA loss of $179 million in Q3 2017, so Egbert does see the potential for it to have improved in Q4 due to better cost controls. The social media firm laid off about 24 employees last month, he added.

Why the Q4 2017 Snap earnings release is key

He sees the Snap earnings release for Q4 2017 as being especially important for the company as it seeks to restore investor confidence. According to Egbert, investor confidence has waned since the Q3 earnings release, although the tumble Snap stock has taken since the company went public about a year ago suggests that confidence was shaken long before Q3.

He does believe that the company stabilized its ad pricing during Q4 as it appears the shift from reserved ad inventories to API and self-serve buying was completed. This shift held back ad price growth earlier in the year, he notes. He expects ad pricing to become “healthier” if its targeting ends up being effective.

On the earnings call, we can expect analysts and investors to want to hear more details on how the rollout of the new Snapchat app is going. One concern some analysts have had is whether the changes will be a good thing.

How many users did Snap add in Q4?

Egbert estimates that the social media firm added about 6 million daily active users, which is in line with the consensus estimate and would bring its user base to 184 million. In Q3 2017, Snap added about 5 million daily users, so 6 million would also be a sequential acceleration, something Snap definitely needs in order to convince investors that its user base is growing.

Stifel’s December Audience Tracker pointed to a sequential increase of about 2 million daily users in North America. Egbert added that while developed markets in Europe and the Rest of the World seemed to show a similar user growth rate as that of the U.S. However, he believes that emerging markets may not reveal much growth because Snap hasn’t made enough improvements for Android users and those with slower Internet in their areas.

Snap stock surged by nearly 2% in intraday trading on Tuesday, climbing as high as $14.12 before midday.