Snap (SNAP) Q2 Earnings: Is Disappointment in the Cards?

Snap Inc.SNAP is set to report second-quarter 2018 results on Aug 7.

The company has a mixed record of earning surprises in recent quarters. It matched the Zacks Consensus Estimate twice and beat it once in the trailing four quarters, delivering an average negative surprise of -0.24%.

Last quarter, the company reported loss of 17 cents per share, which was in line with the Zacks Consensus Estimate but narrower than the year-ago quarter's loss of 20 cents.

However, revenues of $230.7 million missed the consensus mark of $246.1 million.

Management expects growth to decelerate in the to-be-reported quarter, owing to the pricing of both Snap Ads and Creative Tools. Moreover, increase in infrastructure costs due to tests and rollout of app updates will remain an overhang.

Snap Inc. Price and EPS Surprise

Snap Inc. Price and EPS Surprise | Snap Inc. Quote

The Zacks Consensus Estimate for second-quarter earnings has remained steady at a loss of 17 cents over the last seven days. The consensus mark for revenues currently stands at $253.1 million, reflecting year-over-year growth of 39.3%.

Let's see how things are shaping up for this announcement.

Key Factors to Watch Out For

The redesign of the Snapchat app garnered significant negative response and had an adverse impact on the company's ad business, which is its primary source of revenues. The top-line growth rate came down significantly in the last reported quarter due to this factor.

Moreover, intensifying competition for ad dollars from the likes of Alphabet's GOOGL Google division, Facebook FB and Twitter has been a major concern.

Both Facebook and Twitter have been adding new features and strengthening security to enhance user engagement, which doesn't bode well for Snap.

Moreover, Snapchat is losing market share to Facebook-owned Instagram, which put up a superb show in the recently concluded quarter.

Further, strength in Google's advertising business was evident from the solid top-line growth (up 26% year over year), driven by YouTube, and mobile & desktop search.

Nevertheless, Snap has also been trying to combat all odds by introducing tools and features to boost engagement and user growth. However, these efforts may not be enough to drive growth in the to-be-reported quarter.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates, if it also has a positive Earnings ESP . The Sell-rated stocks (Zacks Rank #4 or #5) are best avoided.

Snap has a Zacks Rank #4 and an Earnings ESP of -7.78%, which indicates an unlikely positive surprise. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

A Stock That Warrants a Look

Per our model, Vishay Intertechnology VSH is a stock that you may want to consider as it has the right combination of an Earnings ESP of +2.41% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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