Snap Inc Earnings Preview: Daily User Growth In Focus

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Snap is set to release its first earnings report since going public tonight after closing bell, and on average, analysts are looking for $157.8 million in revenue and adjusted losses of 19 cents per share. The FactSet consensus also suggests EBITDA losses of $182 million.

Estimates for Snap’s first public earnings report are quite wide, with the FactSet estimates ranging from $130 million to $195.6 million in revenue and EBITDA losses ranging from $251.2 million to $84.1 million.

Snap’s user metrics in focus

Analysts and investors will be looking at much more than just financial metrics, however, as the number one concern bulls have had with the Snapchat parent appears to be user metrics. Multiple firms said in their earnings preview notes that they want to see signs that the company’s user base is growing and also that it can sustain its user base.

Snap management said repeatedly before the initial public offering that user growth and engagement could vary widely from quarter to quarter because of new product launches. They also described daily active user growth as remaining “lumpy,” but despite this, William Blair analyst Ralph Schackart believes investors will still focus on quarterly daily active user growth, especially as Facebook keeps rolling out clones of Snapchat and the company’s other features.

How many users does Snap need to add to please investors?

Schackart is expecting 169 million daily active users, representing a 39% year over year increase and an increase of 11 million daily users from the previous quarter. Deutsche Bank analyst Lloyd Walmsley sees daily users as being the most critical metric, and he is looking for 166.5 million average daily users and 172 million daily users at the end of the month. He feels that most investors are expecting about 8 million net new average daily users, so anything higher than that would be viewed positively.

Many analysts and investors see Snap’s first earnings report as an indicator of what to expect over the next couple of years. Will it follow in the footsteps of Facebook and become a darling of growth, or will it struggle to add users and go the way of Twitter? Wall Street is especially looking for signs that Facebook’s clones will eat away at any chances Snap has for growth.

What will earnings do to Snap stock?

Snap stock fell by as much as 1.315 to $23.02, but it still remains well above the IPO price, which was $17. However, more pain could be on the way tomorrow. MKM Partners analyst Jim Strugger said in a note today that Facebook, LinkedIn, Twitter and other popular social media stocks fell by 14% on average the day following their first earnings reports filed as a public company. Strugger added that as of the close of market on Tuesday, options were pricing in a move of 15.2% in Snap stock.

But despite Strugger’s findings that a downward direction is more likely for Snap tomorrow, JPMorgan analyst Doug Anmuth said in a May 7 note that his bias was to the upside although his call was particularly for the leadup to tonight’s earnings release. He explained that supply around Snap stock may be tight given the high short interest, as less than 13% of it was currently floating. Further, he said Bloomberg pegged short interest at about 36 million shares or 20% of the 180 million share float, and he expects the company to beat the revenue consensus. Additionally, he noted that sentiment is still very cautious, which means any big surprise could be like lighting a powder keg.

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