Snap Q3 Earnings Report on Deck: Will the Run Continue?

Snap SNAP is set to report its third quarter results after the closing bell on Tuesday, October 22. Snap shares have skyrocketed 151% in 2019, easily outpacing the broader software market’s 15% run.

However, Snap has recently seen Facebook’s FB Instagram ramp up its efforts to seize control of the Gen Z market they both vigorously compete for.

Will investors see Snap’s run continue after it reports its Q3 earnings results or will the social media company possibly succumb to the competitive market? Let’s take a look at what’s gone on recently with the company and what to expect from Q3 financial results. 

Competition Heats Up

Earlier this month, Facebook launched Instagram Threads that allows users to start individual or group chats. Users can also send vanishing photos, short videos, and let the app automatically update their status without revealing the user’s actual location. Facebook’s latest move was an obvious attempt at prying away younger users from Snapchat, and Snap’s shares initially fell on the news of the new Instagram feature.

However, the launch of the Threads feature wasn’t received well by Instagram users as data from Apptopia found that only 222,000, or less than 0.1% of Instagram users, downloaded Threads within the first week of its release. The feature’s performance lagged significantly behind the other recently released Instagram features like IGTV and Boomerang, which hit 1.5 million and 2.8 million respective downloads in the first week.

Threads has struggled to gain steam as the messaging space is already filled with many different apps such as Facebook’s very own Messenger and WhatsApp, as well as Tencent’s TCEHY WeChat. There clearly isn’t enough demand for Instagram to have a standalone app when users can already message each other on the Instagram app, which is possibly good news for Snapchat.

Company Outlook

Snap has not stood idly by as its competitors ramp up their efforts to snag market share. The company recently partnered with Adidas ADDYY to launch Baseball’s Next Level, a video game that allows users to play as several MLB athletes such as the Yankees' Aaron Judge, the Astros' Alex Bregman, and the Dodgers' Justin Turner.

The featured athletes all wear digital versions of the company's own 8-bit Adizero or Icon V cleats, and players can purchase the real shoes directly in the game. The $130 cleats are adorned with pixel art patterns to resemble their video game counterparts. Snap also partnered with e-commerce giant Amazon AMZN and integrated its online marketplace into Snapchat, which allows users to visually search for products on Amazon.

Our Q3 consensus estimates forecast Snap to see a bottom-line climb 58.3% to a loss $0.05 per share and for sales to surge 47% to $437.59 million. Geographically, North America is expected to bring in $295.2 million for a 42.3% hike, while Europe is projected to soar 50.9% to $76.2 million.The rest of the world is projected to reel in $64.7 million for a Y/Y gain of 62.9%.

Our Q3 Key Company Metrics project Daily Active Users to grow 11.3% to hit 207.1 million and Average Revenue Per User is forecasted to increase 31.9% to $2.11.

Looking ahead to the company’s full fiscal year figures, estimates anticipate earnings to jump 57.45% to a loss of $0.20 per share and for sales to soar 44.24% to $1.7 billion. DAU is forecasted to come in at 203.1 million for a 9.18% leap and ARPU is expected to climb 34.1% to $8.45.

Bottom Line

Facebook has seen its growth in the US and Canada decelerate amid an onslaught of privacy and antitrust probes into the social media company, which is part of the reason why it has turned its attention to Instagram.However, its attempts thus far to thwart Snap from growing with younger users have failed.

Snap has made its own moves to expand its presence, DAU, and profitability that have helped turn the company around in 2019. Snap’s stock was trading for around 5$ earlier in 2019 and currently trades around $13 dollars but still has room to grow to reach its 2017 highs. The SNAP stock sports a Zacks Rank #2 (Buy).

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