Can Snap (SNAP) finally break its losing streak? And is the stock, which has traded sideways around $13 for the past month, worth a gamble?
The parent of popular messaging app Snapchat will report second quarter fiscal 2018 earnings results after Tuesday’s closing bell. The shares are now down nearly 30% from its $17-per-share initial public offering price last year. The punishment has been driven by (among other things) weak user growth metrics and stiff competition from Facebook (FB)-owned Instagram. Can Snap surprise the Street with better results?
For the three months that ended June, Wall Street expects Snap to report a per-share loss of 17 cents on revenue of $251.19 million. This compares to the year-ago quarter when the loss came to 16 cents per share on revenue of $181.67 million. For the full year, ending in December, the loss is expected to be 60 cents per share, compared to a 61-cent loss a year ago, while full-year revenue of $1.16 billion would rise 41% year over year.
The earnings results from social media peers Facebook and Twitter (TWTR) were less than spectacular, resulting in both stocks losing more than 20% of their value. Following the release of its first quarter results, Snap shares plunged to all-time lows owing to weak revenues. First quarter revenues of $230.7 million missed the consensus mark of $246.1 million, though earnings beat. Snap at the time warned its Q2 year-over-year revenue growth rate would "decelerate substantially" compared to Q1.
Lower ad prices were cited as reasons for the expected revenue decline. In Q1 ad prices (outside of its Story ads) plunged 65% year over year as the company switched to an automated "programmatic" auction-based system instead of a direct sales method. In other words, a revenue miss could be in store Tuesday.
Beyond the top- and bottom-line numbers, analysts will also hone in on the company’s profits margins as a way to monitor the impact that increase in infrastructure costs have had on not just this quarter, but also the ones to follow. After much criticism, the company last quarter rolled out a redesign to the redesign of the app. That redesign, however, has come at a cost to the company’s profit margins as its spends on various ad tech and platform safety measures.
To its credit, Snap, while working towards growth, has also focused on improving profitability. Reports of layoffs, of which there has been three such cuts in 2018, are recent examples of how Snap management is working towards efficiency. To what extent these efforts offset margin pressures from the app redesign remains to be seen. Suffice it say, Snap is still a work in progress in this stage of its existence. Whether that state merits investors’ capital depends on who’s doing the assessment and their time frame.