On The Fly: What to watch in Snap earnings report
Snap Inc. (SNAP) is scheduled to report results of its second fiscal quarter after market close on August 7, with a conference call scheduled for 5:00 pm ET. What to watch for: 1. USER GROWTH: With its last report, Snap said that its Daily Average Users, or DAUs, had grown to 191M, up 15% year-over-year. That was down from the 18% year-over-year increase in DAUs reported in the fourth quarter and investors will surely be watching that metric closely to see if there is further slowing in user growth or if the trend has improved. On June 20, Needham analyst Laura Martin lowered her Q2 revenue forecasts on Snap by 15%, saying her channel checks suggested that the Daily Active User count will fall by 3M in Q2 to 188M users, which was also 6% below her prior estimate. The analyst kept her Underperform rating, adding that the checks also anticipate a "dramatic slowdown in spending" by brands as a result of the major advertising events like the Grammys, Super Bowl, and NCAA finals not being repeated. 2. ANALYSTS GENERALLY LUKEWARM TO BEARISH: This morning, BTIG analyst Richard Greenfield kept his Neutral rating on Snap but lowered his FY18 revenue projections again to $1.13B and FY19 to $1.61B, noting that these are now much less than his original April 2017 forecasts of $2.5B and $4.9B respectively. The analyst notes that his initial Neutral rating on Snap was a "mistake," as revenue did not ramp as he expected, but adds that given the "horrible" sentiment on the stock, any evidence of "success" could lead to an upside "overreaction". Deutsche Bank analyst Lloyd Walmsley expects "weak" daily active user trends in Q2 but improving monetization from Snap, particularly in the second half of the year. To reflect the rollback of the redesign still not being completed for Android users in Q2, the analyst lowered his quarter-over-quarter net new average DAU number to down 2.5M from up 1M to 188.5M, below the Street at 192M. The analyst thinks brand ad buyers may be hesitating given the redesign and cut his Q2 revenue estimate for Snap to $243M from $249M, the latter of which is closer to the consensus forecast. Walmsley, however, slightly increased his Q3 and Q4 ad revenue estimates reflecting improving feedback around the company's ad tech improvements. The analyst bumped up his price target to $13 from $12 but keeps a Hold rating on Snap. According to Bloomberg data, among 35 analysts who have updated their rating within the last 12 months, six have a Buy or equivalent rating, 18 have "Holds" and 11 have a Sell or equivalent rating. 3. 'BRIGHT SPOT'?: On July 24, The Information said that Snap's upcoming Q2 earnings report is widely expected to show weak user growth. However, "one bright spot" in the business is the rapid growth of the company's direct response ads business, which now accounts for around 40% of overall revenue, a person with knowledge of the matter reportedly told the tech-focused publication.