Markets

Why Is Snap (SNAP) Down 13.2% Since its Last Earnings Report?

It has been about a month since the last earnings report for Snap Inc.SNAP . Shares have lost about 13.2% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is SNAP due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Recent Earnings

Snap reported loss per share of 13 cents, which was narrower than the Zacks Consensus Estimate of a loss of 15 cents and the year-ago quarter's loss of 19 cents.

The company reported revenues of $285.7 million, which came ahead of the consensus mark of $251.7 million and grew 72.4% year over year.

The year-over-year increase in revenues is impressive, given the decelerating growth trend that the company witnessed in the past three quarters. In the first, second and third quarters of 2017, the company's revenues had registered 286%, 153% and 62% year-over-year increase, respectively.

Quarter in Detail

Ad revenues of $281 million in the quarter grew 74% year over year and 38% sequentially. Revenues from other sources contributed the rest. Snap's transition to automated auction for advertisements resulted in 90% of Snap Ads being bought programmatically during the quarter.

Snap's price per ad impression dropped 25% in the quarter but advertising impressions grew more than four times year over year, which drove results. Management notes that revenues from smaller businesses more than doubled sequentially.

Moreover, Snap's international revenues (23% of total revenue) increased 12% year over year and 20% sequentially.

The company's daily active users (DAU) and average revenue per user (ARPU) witnessed year-over-year improvement. DAU increased 18% year over year to 187 million, while ARPU improved 46% to $1.53. Management notes that net addition of 8.9 million DAUs to be the highest since the third quarter of 2016, driven by an increase in Android users.

Notably, on a sequential basis, DAU increased 5%. This is also a positive as the company was witnessing decelerating growth in DAU. In the third quarter, it was a meagre 2.9%, down from 4.2% increase in the second quarter and 5% in the first quarter.

Snap's costs per user (CoRPU) increased only 2% year over year to 98 cents. The company's main cost, hosting costs per DAU, was 70 cents, lower than the year-ago quarter figure of 72 cents.

Snap's cost of revenues increased 24.7% to $191.2 million on a year-over-year basis. The company noted that its operating expenses for the quarter increased 17% sequentially, mainly due to an increase in legal costs, sales commissions and year-end expenses and a modest growth in headcount.

Gross margin of 36% expanded 2,700 basis points (bps) from the year-ago quarter.

The company ended the quarter with cash, cash equivalents and marketable securities of $2.04 billion, down from $2.3 billion as of Sep 30, 2017.

During the quarter, Snap used approximately $176.1 million of cash for operational activities. Free cash outflow was nearly $197.3 million.

Note: The EPS data mentioned in the text of this section differs from the rest of report due to the difference in calculation or consideration of one-time items.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to two lower.

VGM Scores

Currently, SNAP has a subpar Growth Score of D, though it is lagging a bit on the Momentum front with an F. Following the exact same course, the stock was also allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate investors will probably be better served looking elsewhere.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions looks promising. Interestingly, SNAP has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Snap Inc. (SNAP): Free Stock Analysis Report

To read this article on Zacks.com click here.

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.

In This Story

SNAP

Other Topics

Earnings

Latest Markets Videos

    Zacks

    Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

    Learn More