Snap Earnings Preview: Here’s What To Look For

Snap Inc. (SNAP) is slated to report first-quarter 2021 earnings on April 22 after the market closes. Over the past year, shares of the technology and social media services provider have skyrocketed 370% and are currently trading at over $58. A strong set of numbers could propel shares higher, so let’s take a closer look at what analysts on the Street are expecting.

Earnings Preview

Wall Street is expecting Snap to report a loss of $0.05 per share on revenues of $739.6 million, while the company guided for revenue of $720 million to $740 million.

Meanwhile, the Earnings Whisper number, or the Street’s unofficial view on earnings, stands at a loss of $0.02 per share.

Prior Period Results

In the previous quarter, the company reported adjusted earnings of $0.09 per share, which tripled compared to the prior-year quarter. The result also beat the consensus estimate by $0.02. In addition, revenue jumped 62% to $911.3 million and surpassed analysts’ expectations of $857.39 million. (See Snap stock analysis on TipRanks)

Factors To Look For

The Snapchat platform has continued to be the main product for Snap. The company is focused on creating innovative features and has organized its platforms into five main screens, including Camera, Map, Chat, Stories, and Spotlight, which are aiding user growth.

The growing popularity of Snapchat among Gen Z (13-24 years) has been driving daily active user (DAU) growth, and therefore, is likely to have provided a cushion in the to-be-reported quarter. Notably, DAUs were 265 million in the last quarter, reflecting growth in North America, Europe, and the Rest of the World on both iOS and Android platforms. Furthermore, Snap offers one of the most-used camera applications globally, with over 5 billion snaps created daily.

During the first quarter, Snap and Oxford Economics jointly released a report defining Gen Z’s role in driving the post-pandemic recovery and digital economy across six markets including Australia, France, Germany, the Netherlands, the UK, and the US. Per the report, Gen Z is likely to support $3.1 trillion of consumer spending in these markets in 2030.

Usage of augmented reality (AR), one of the fastest-growing digital technologies during the pandemic, is anticipated to expand four-fold by 2023.

Notably, continued investments in the Discover platform have reaped benefits for Snap. Over 90% of the US Gen Z population has watched Shows and publisher content in the last quarter and the total daily time spent by Snapchatters is on the rise. Therefore, with the launch of a record 97 new international Discover channels in 4Q and increasing usage of AR Lenses, the company is likely to have recorded user growth in the first quarter.

Meanwhile, Snap’s first-quarter top-line growth might have been impacted by lower ad spending. Also, a continued decline in price per ad impression and increasing competition might have weighed on advertising revenues, the only source of revenues for Snap.

Overall, management expects to increase average revenue per user (ARPU) by scaling demand and return on investment over the next several years through innovations in AR, Premium Content, Gaming, Maps, Minis, and more.

Recent Developments

Last month, Snap and London-based publisher and developer, Gismart, signed a multigame cross platform partnership. As part of the collaboration, Gismart will make games for Snapchat. The company launched Crazy Run, a new game on Snap’s social platform for both iOS and Android.

Furthermore, in March, Snap acquired a Berlin-based firm, Fit Analytics, which helps consumers find the right size during online buying to reduce the pain of returns. The terms of the deal were not disclosed. Through this acquisition, Snap aims to bring more e-commerce and in-app purchases to Snapchat.

Analyst Recommendations

On April 20, Rosenblatt Securities analyst Mark Zgutowicz reiterated a Buy rating and a price target of $100 on the stock.

Zgutowicz said, “Given management’s very recent and generous investor day outlook, suggesting 50%+ revenue growth over the ‘next several years’ (lifting our LT revenue CAGR 800 bps to 34%), it’s hard to see a 1Q encore. Rather, we look for results to substantiate the new long-term trajectory, requiring N America ARPU to maintain the accelerating y/y track (that began in 3Q) thru at least 1H21.”

Furthermore, the analyst also expects “the call to set the stage for new commerce monetization potential with tangibles revealed at its Partner Summit in May.”

The consensus rating among analysts is a Strong Buy based on 28 Buys, 6 Holds, and 1 Sell. The average analyst price target stands at $78.34 and implies upside potential of 34% to current levels.

TipRanks data shows that financial blogger opinions on SNAP are 81% Bullish, compared to a sector average of 67%.

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