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SNAP Gearing Up to Report Q4 Earnings: What's in the Cards?

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Snap (SNAP - Free Report) is set to report fourth-quarter 2022 results on Jan 31.

The Zacks Consensus Estimate for revenues is currently pegged at $1.3 billion, indicating 0.47% growth from the year-ago quarter’s reported figure.

The consensus mark for the bottom line has been steady at 10 cent per share, indicating 54.5% decline from the year-ago quarter’s reported figure.

Let’s see how things have shaped up for the upcoming announcement.

Snap Inc. Price and EPS Surprise

Snap Inc. Price and EPS Surprise

Snap Inc. price-eps-surprise | Snap Inc. Quote

Factors to Note

Snap has been benefiting from a spike in the usage of Snapchat. The growing adoption of Snapchat among the Gen Z (13-24 years) population is expected to have driven Daily Active Users (DAUs), thus expanding the company’s advertiser base.

In the third quarter, Snapchat’s subscriber growth, reflected by DAUs, increased 57 million on a year-over-year basis. DAUs at the end of the third quarter were 363 million, up 18.6% year over year.

The Zacks Consensus Estimate for fourth-quarter global DAUs is currently pegged at 376 million, indicating growth of 17.9% from the year-ago quarter level.

Moreover, Snapchat+ premium subscription service has gathered initial success, which is expected to have aided top-line growth. The Snapchat+ subscription service, with exclusive, experimental and pre-release features, reached more than 1.5 million paying subscribers in the third quarter and is now offered in 170 plus countries.

On Oct 20, Snap announced new features for its premium subscription service, Snapchat+, including Custom Story Expiration. This feature sets Snaps on your story to expire after one hour or up to one week. The new Custom Notification Sound lets users set different tones for different friends. The Custom Camera Color Borders feature lets users cast their favorite hue on screen while capturing content.

SNAP has been focused on continuously adding innovative features like Lens Studio 2.0, Camera Kit, Snap Minis and Bitmoji for games, making Snapchat more attractive for users and advertisers.

In the to-be-reported quarter, Snap announced partnership with Amazon (AMZN - Free Report) Fashion partner to bring millions of Snapchatters new virtual try-on (VTO) experiences, expanding augmented reality (AR) for both brands and customers. The new Snapchat try-on Lenses feature thousands of Amazon Fashion’s popular VTO eyewear products, enabling Amazon brands to leverage their Amazon AR assets and showcase styles in a fun, interactive experience to millions of Snapchatters.

With these recent launches, Snap has been democratizing its AR tools that are likely to drive user growth.

In the fourth quarter, Snap announced its fifth Lens Fest, a multi-day global virtual event exploring new dimensions of AR and celebrating the lens creator community that shapes the future of AR.

In addition to the strong adoption of AR Lenses, the Discover content and Shows are expected to have driven user growth. The growing Snap Originals content is also expected to have bolstered user engagement for this Zacks Rank #3 (Hold) company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In Q3, overall time spent watching content globally grew on a year-over-year basis, driven primarily by growth in total time spent watching content on Discover and Spotlight. Total time spent watching Spotlight content grew 55% year over year and Spotlight monthly active users exceeded 300 million in Q3.

The Zacks Consensus Estimate for Snap’s fourth-quarter ARPU is pegged at $3.48, suggesting a decrease of 14.3% from the year-ago quarter’s reported figure.

A steady yet slow ad-spending environment is expected to reflect on Snap’s fourth-quarter top-line numbers. Advertising has been the only source of revenues for Snap, which has been facing significant competition from the likes of Meta Platforms (META - Free Report) and Alphabet (GOOGL - Free Report) for ad dollars. A persistent decline in the price-per-ad impression is likely to have dented advertising revenues for the company.

META is pumping resources into developing AI to address solutions for megatrends like a hybrid work environment, which will drive its user base across various platforms like Meta Portal Go. Investments in AI are also expected to draw higher revenues from Meta’s ad business.

SNAP is also giving competition to META in the metaverse space. It collaborated with Vogue to feature a VTO experience of select pieces from Balenciaga, Dior and Gucci, which will be available for snapchatters globally.

In its race to target TV ad dollars, Alphabet allowed third-party (Nielsen and comScore) tagging of YouTube videos to determine the effectiveness of ads on YouTube versus ads shown on TV. The Google Preferred program pulls out the top 5% of the most engaging content on YouTube for advertisers. Alphabet has also promised to advertise this content itself in order to boost traffic. Google Preferred is attracting spending on the platform.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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