Reports Q3 2020 results on Tuesday, October 20 after the close
Expected Revenue: $ 550.56
EPS Expectation: – $ 0.18
Snap (NYSE 🙂 today reports its third quarter earnings amid investor optimism that the operator of its photo-sharing app, Snapchat, is managing to improve its turnaround and more add users.
Snap has been one of the strongest stocks on social media this year as the turnaround gained momentum after a few very difficult years since its IPO in 2017. What drove investors back to this once doomed name was evidence that the The company's app redesign is starting to pay off, forcing users to spend more time viewing premium content on Snapchat.
Last year, the company also released a new version of its Android app, which also helped attract users in emerging markets. With these technical changes, Snap also shifted from top executives, making breakthroughs in markets outside the US and Europe. In the period ending in June, Santa Monica, California-based Snap said its daily active users grew 17% to 238 million, following similarly powerful additions early this year.
Optimism for the recovery drove stocks up 111% over the past year, rebounding sharply from its December 2018 low, when it fell to just $ 5 a share. Snap was trading up 2.98% on Monday to close out at $ 28.66 after hitting an all-time high.
Snap 1-year chart.
Snap & # 39; s games platform and augmented reality features, which allow users to add images to their hands, feet or body, are among the elements that have gained popularity in recent months, alongside the app's face-distorting lenses and a gender swap filter that converts a man's face to a woman's and vice versa.
Bullish Calls
Encouraged by these improvements, analysts expect a 23% increase in sales in the third quarter, while net losses are expected to decline from a comparable period a year ago. Ahead of earnings, Stifel Nicolaus analyst John Egbert reiterated his Snap buy rating as he raised the stock price forecast from $ 27 to $ 32.
In a note on October 14, Egbert wrote:
"We expect DAU & # 39; s [daily active users] to be at the top of Snap's guidance range in 3Q, supported by steady gains in North America / Europe and a trend in Rest of World segment."
Egbert believes that Snap should be a major contributor to the growing demand from direct response advertisers during Christmas shopping. And "the company's audience growth, product innovation, and long-term outperformance of ad growth should drive strong growth in FY: 21 and beyond."
Snap's improved financial and user statistics have undoubtedly played a big part in the stock's outperformance this year, but the regulatory oversight facing the major social media companies is another big positive for the company.
An app with a clear and defined audience with little room for abuse is in a much better position to withstand potential regulatory changes worldwide than giants like Facebook (NASDAQ 🙂 and Alphabet's (NASDAQ 🙂 Google, the social media heavyweights that some politicians want to break up.
Despite this strong comeback, however, investors betting on Snap shares at the time of the IPO in March 2017 are just recovering their losses after missing out on other opportunities to make money.
When it comes to competition, Snap will continue to fight Facebook and Twitter (NYSE :), while the increasingly popular TikTok video-sharing app is another threat.
Bottom Line
Snap remains a volatile stock in our opinion, despite some signs of stability in the metrics for revenue and user engagement. Owned by much bigger rival Facebook, Instagram continues to pose an existential threat to Snap, which is unlikely to go away. After this powerful rally, we do not recommend risk-averse investors to buy this stock, which has a history of wild movements after the earnings reports.
