Snapchat ()
Snap Inc. (SNAP), parent of popular messaging app Snapchat, will report first quarter fiscal 2017 earnings results this afternoon after the closing bell.
Fresh off its highly-touted IPO in early March and closing 44% above its issue price, this will be Snap’s first quarterly results as a public company. And with SNAP stock falling as much as 36% from its IPO high of $29.44, investors are noticeably anxious about what the upstart tech company might reveal. Shares have bounced back a bit, climbing about 8% higher in the past month, compared with a 2% rise in the S&P 500 index. Can it sustain the climb?
Often compared to Facebook (FB), Snap has high expectations to fill. Facebook is absolutely crushing it in terms of user engagement and advertising growth. This is despite being the nation’s sixth largest company. These comparisons to Facebook, however, aren’t fair or even realistic. Not to mention, it’s disrespectful to Facebook, which recently showed that Instagram Stories have surpassed Snapchat in terms of daily active users.
On Wednesday, Snap could impress Wall Street, which has grown wary about its valuation, just by showing it isn’t the next Twitter (TWTR). To that end, Snapchat’s daily user growth, which had been pressured in previous quarter, will need to show significant improvements. In the fourth quarter, the company posted only a 3.3% sequential rise in daily active users (DAU), reaching 158 million. The tepid increase worried investors that Facebook’s rival Instagram Stories released in October, which reached 200 million users, was pressuring Snapchat.
For the quarter that ended March, analysts expect Snap to lose 19 cents per share on $158 million in revenue. While the revenue consensus calls for a massive fourfold jump from the $38.8 million posted in the year-ago, it would also mark a decline from $165.7 million in the holiday quarter. Something to keep in mind: According to Snap's regulatory filing, a sequential revenue decline hasn't happened in at least two years.
What’s more, while revenue is growing at a breathtaking rate, the company’s costs continue to rise too. For SNAP stock to earn trust, the company must do two things Wednesday: Double the sequential rise in net DAUs gains (from 5 million net adds in Q4 to 10 million this quarter) and secondly, Snap — which calls itself a camera company rather than a social network — must lay out a clear path towards profitability.
Until those two things are known, Snap’s lofty valuation, which is at 65 times revenue, will continue to leave little margin for error. And that’s just too much execution risk for me to put my own money on the line in SNAP stock.
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.
