On The Fly: What to watch in Snap earnings report
Snap Inc. (SNAP) is scheduled to report results of its first fiscal quarter after market close on April 23, 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, were 186M, flat quarter-over-quarter and down 1M users from last year. At the time, CEO Evan Spiegel said, "We ended the year with user engagement stabilizing in advance of the broad rollout of our Android improvements, with overall Q4 daily active users flat quarter-over-quarter and average time spent above 30 minutes per day... We are seeing our investments in improving the Snapchat experience beginning to bear fruit on iOS. In Q4, our iOS daily active users increased both quarter-over-quarter and year-over-year, and average time spent on iOS grew faster during Q4 than it did last year. This is great progress following our redesign, and we look forward to continuing to grow engagement on our platform." On April 10, eMarketer's Ross Benes said he expects Snapchat's U.S. monthly user base to decline 2.8% this year to 77.5M, but sees Snapchat increasing its worldwide monthly user base 11.3% to 297.7M in 2019. In a statement to media outlets and BTIG's Rich Greenfield following that report, Snap called the methodology of eMarketer's forecast "flawed" and said its user forecast is more than 10M off from the company's publicly available reach on its ad buying tool. 2. RECENT SUMMIT: On April 4, Snap hosted its first-ever partner summit, which was viewed as part of an ongoing effort to be more open and communicative as the company faces competition from other platforms like Facebook's (FB) Instagram and up-and-comer TikTok. At the event, Snap announced Snap Games, a real-time multiplayer gaming platform featuring original and third-party video games from a number of developers. The company also made several other announcements, including a Bitmoji clock face partnership with Fitbit (FIT), a new slate of Snap Originals shows and new augmented reality and camera search experiences. 3. SHARE PERFORMANCE STRONG, ANALYST VIEWS MIXED: Social stocks have outperformed year-to-date, up ~55% versus the Nasdaq's rally of 20%, with Snap being the top performer with an advance of 120% after lagging the group in 2018, Jefferies analyst Brent Thill recently told investors. Thill is "incrementally positive" on Snap's "encouraging momentum," but says the company is "not out of the woods yet." If Snap can deliver on daily active user growth in Q1, it should be a catalyst for shares. However with the stock trading at nine-times 2019, these improvements are largely priced in, Thill said. On April 18, Wedbush analyst Michael Pachter downgraded Snap to Neutral from Outperform, citing valuation. Pachter expects Snap to report Q1 results modestly above guidance and consensus and foresees Q2 guidance roughly in-line with consensus, but he believes the stock's current price leaves little room for upside. He maintained a $12.25 price target on Snap shares. On April 5, RBC Capital analyst Mark Mahaney upgraded Snap to Outperform from Sector Perform and raised his price target for the shares to $17 from $10. The analyst sees early evidence that its Android platform improvements are "finally gaining traction." Snap may have reached a fundamentals inflection point, Mahaney told investors. Further, the analyst views the stock's valuation as "much-less demanding" relative to 2017, he said. This morning, Credit Suisse analyst Stephen Ju raised his price target for Snap to $13 from $10.50 and reiterated an Outperform rating, noting that the company recently released an updated version of its Android App, which he believes will place it in a better position to address user demand across the globe. Ju now expects 3M incremental users for 2019 versus a 1.5M decrease he forecast previously.