All Eyes on Snap Inc (SNAP) 3Q Print Tonight

A bull vs. a bear paint a tale of different expectations ahead of Snap's quarterly performance.


Snap Inc (NYSE:SNAP) shares are rising almost 2% as anticipation is fluttering ahead of the social media darling of the millennials set to release third quarter earnings- the company’s third showcase after having gone public. While the first two quarterly performance did not show Snap in its best light, where do analysts align in previewing the popular Snapchat app parent company’s turnout due once the bell tolls?

“Since the last earnings call, Snap has been busy innovating, launching new original shows and expanding its partnerships,” writes Drexel Hamilton analyst Brian White, chiming in with a bullish take thanks to Snap’s rollout of innovations. While this analyst cheers for the tech player’s “strong upside potential over the next 12 months,” likewise investors should brace themselves for “continued volatility” ahead.

With a loyal youthful user base and spiraling growth, the analyst’s intrigue outweighs risks for volatility, as White reiterates a Buy rating on SNAP stock with a $30 price target, which implies a 97% increase from where the stock is currently trading. (To watch White’s track record, click here)

White sings the company’s praises, asserting: “Snap continues to grow at a rapid pace, introduce new innovations, roll-out compelling content and remain true to its core base of millennial followers.”

Yet, “Given that Snap remains in the nascent stages of development and the company offers no quarterly or annual guidance, we believe this opens the door for heightened volatility around Snap’s quarterly results,” the analyst notes, who may be more confident than the Street anticipating a 90% year-over-year surge to $243.3 million, with the Street standing at $236.7 million, but is more conservative than the Street’s loss per share of $0.15, as White calls for a loss per share of $0.17.

For the third quarter, the analyst projects worldwide average revenue per user (ARPU) to hit $1.37, which would suggest a 63% climb from this time last year’s result of $0.84. In terms of average daily active users (DAU), the analyst sees a 16% rise from 153 million in this time last year to 178 million for the third quarter, but notes this growth comes with a warning: “however, we believe this metric is less relevant when evaluating Snap’s overall results compared to Facebook and others.”

Glancing ahead to the fourth quarter, the analyst estimates sales will bring in $306.8 million to the social media table, more bullish than the Street’s $305.4 million, along with a loss per share of $0.16, compared to the Street’s expectations of $0.14.

Keep in mind, White contends that Apple’s latest, sleekest iPhone launch that officially kicked off last weekend could be important to Snap’s prospects, as the platform could pose “new and improved experiences by leveraging Apple’s new TrueDepth Camera System.”

Top analyst Youssef Squali at SunTrust weighs in from the polar opposite end of White’s enthusiasm with a bearish take, finding consensus expectations for 2018 hover too “high,” and believing even his own estimates pose a “risk to the downside.”

Pointing that even the Street’s forecasts have sunk as the third quarter has passed, the analyst reiterates a Sell on SNAP stock with a price target of $10, which represents a 34% downside from current levels.

Squali highlights, “We find Snap to be highly differentiated in terms of audience, engagement and creative palette, but on-going improvements to the monetization platform and intense competition from FB and GOOGL have made it difficult for the company to meet lofty Street expectations, especially in the absence of guidance. Stabilization of the platform post launch of the self-serve and programmatic functions, and resetting of Street ests should position the company (and stock) for success longer-term.”

For the third quarter, consensus revenue expectations have already fallen from $276 million to $244 million by the end of August to $237 million just three days ago, according to FactSet. Likewise, Squali hits upon a “similar trend” with GAAP EPS sliding from ($0.26) at the end of July to ($0.29) just three days ago. To Squali, this exposes a greater issue at hand of “reduced growth prospects for the platform and traction with advertisers short-term in the face of lofty Street estimates, set in the absence of guidance.”

Ahead of tonight’s earnings showdown, the analyst calls for 88% year-over-year growth in revenue to $242 million, which is a far cry from the 153% year-over-year growth seen in the second quarter, along with EPS of ($0.32). Gains should ride a wave of pricing, continues Squali, who calls for a 56% year-over-year climb in ARPU, another fall considering second quarter yielded 98% in gains, along with engagement, where DAUs should increase 22%.

Even the Street’s revenue expectations for 2018 of $1,584 million have seen a meaningful decrease from second quarter, with consensus estimating $1,865 million at the end of July, dialing this down already by the end of August to $1,633 million, with November 3rd hitting a new low estimate of $1,584 million. Even this calls for 80% year-over-year gains, a projection Squali shakes his head at as all the same “aggressive.” From where the analyst squares Snap’s revenue expectations for next year, an estimate that could even prove to be too high, Squali projects $1,558 million.

Moving forward, “Pricing headwinds and tough comps to reign in growth,” as one of Wall Street’s best performing analyst surmises, “The launch of a self-serve ad and programmatic bidding platforms has fueled ad volume growth, but pressured ad pricing in 2Q17, and we believe that will continue in 2H17.”

Youssef Squali has a very good TipRanks score with a 71% success rate and a high ranking of #68 out of 4,703 analysts. Squali garners 18.7% in his yearly returns. However, when recommending SNAP, Squali forfeits 11.8% in average profits on the stock.

Ultimately, the Street proves to fall between White’s bullish praise and Squali’s bearish words of alarm for the social media millennial favorite’s opportunity, as TipRanks analytics exhibit 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.