Michael Pachter Predicts: Snap Inc (SNAP) 3Q Earnings to Underwhelm the Street

Is Snap in over its head when up against rivals for user mindshare and ad dollar competition?


Snap Inc (NYSE:SNAP) investors will be tuned in to tomorrow’s third quarter earnings showcase and sidelined Wedbush analyst Michael Pachter is predicting the Street should brace itself for a disappointment. While the company may be coming out and left with new product upgrades that entice its current user family, Pachter anticipates this will not translate to forthcoming “inflection” in terms of new user gains.

“Decelerating growth trends, fierce competition for user mindshare and advertiser dollars, and a history of being hugely unprofitable keep us on the sidelines,” writes the analyst, who reiterates a Neutral rating on SNAP stock with a $12 price target, which represents a 21% downside from where the shares last closed. (To watch Pachter’s track record, click here)

For the third quarter, while consensus calls for the popular Snapchat app parent company to bring $238 million to the social media table, Pachter is less confident, anticipating Snap will underperform with $212 million. Likewise, with EPS, whereas the Street projects $(0.15), the analyst forecasts $($0.16). In terms of user gains, the analyst believes daily active users (DAUs) will climb 8 million more, achieving a global DAU average of 181 million by the close of the third quarter, as Pacther notes he expects “growth spread roughly evenly across each of its geographies.” Average revenue per user (ARPU) is looking better, as the analyst notes he estimates a rise from $0.84 this time last year as well as a bump up from last quarter’s $1.05 to $1.17 for the third quarter of 2017.

Pachter continues, “While continued innovation across Snap’s creative tools suite will likely drive sustained growth in engagement metrics and overall impressions, the simultaneous and ongoing mix shift towards programmatic placements will drive further declines in ad pricing. In our view, these factors, combined with only modest user growth, will result in y-o-y revenue growth of 65%, versus consensus’ implied 86% revenue growth, and Snap’s 153% revenue growth last quarter.”

Keep in mind, “Superior targeting, massive scale, and similar ad formats from competitors may increasingly limit Snapchat’s future growth,” the analyst fears. Though Pachter believes the tech company can still spiral both impressions and engagement alike amid “an attractive demographic,” even Snap has “clearly stated, it is still early days for its monetization and programmatic efforts.” With rivals like Facebook-acquired Instagram’s DAUs hitting a whopping 500 million and Instagram Stories’ DAUs amassing 300 million, Snap needs to keep up the pace with some heavyweight competition.

Wall Street analyst consensus backs Pachter’s wading-the-water approach when it comes to the social media player’s opportunity ahead, as TipRanks analytics demonstrate SNAP as a Hold. Based on 28 analysts polled by TipRanks in the last 3 months, 8 rate a Buy on Snap stock, 15 maintain a Hold, while 5 issue a Sell on the stock. The 12-month average price target stands at $15.07.