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Snap (SNAP) Q4 Earnings and Revenues Surpass Estimates
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Snap Inc. (SNAP - Free Report) reported loss per share of 13 cents, which was narrower than the Zacks Consensus Estimate of a loss of 15 cents and the year-ago quarter’s loss of 19 cents.
The company reported revenues of $285.7 million, which came ahead of the consensus mark of $251.7 million and grew 72.4% year over year.
The year-over-year increase in revenues is impressive, given the decelerating growth trend that the company witnessed in the past three quarters. In the first, second and third quarters of 2017, the company’s revenues had registered 286%, 153% and 62% year-over-year increase, respectively.
Notably, shares of Snap have lost 42.6% of their value since its listing date of Mar 2, 2017 against 19.5% growth of its industry.
Quarter in Detail
Ad revenues of $281 million in the quarter grew 74% year over year and 38% sequentially. Revenues from other sources contributed the rest. Snap’s transition to automated auction for advertisements resulted in 90% of Snap Ads being bought programmatically during the quarter.
Snap's price per ad impression dropped 25% in the quarter but advertising impressions grew more than four times year over year, which drove results. Management notes that revenues from smaller businesses more than doubled sequentially.
Moreover, Snap’s international revenues (23% of total revenue) increased 12% year over year and 20% sequentially.
The company’s daily active users (DAU) and average revenue per user (ARPU) witnessed year-over-year improvement. DAU increased 18% year over year to 187 million, while ARPU improved 46% to $1.53. Management notes that net addition of 8.9 million DAUs to be the highest since the third quarter of 2016, driven by an increase in Alphabet's (GOOGL - Free Report) Android users.
Notably, on a sequential basis, DAU increased 5%. This is also a positive as the company was witnessing decelerating growth in DAU. In the third quarter, it was a meagre 2.9%, down from 4.2% increase in the second quarter and 5% in the first quarter.
Snap’s costs per user (CoRPU) increased only 2% year over year to 98 cents. The company’s main cost, hosting costs per DAU, was 70 cents, lower than the year-ago quarter figure of 72 cents.
Snap’s cost of revenues increased 24.7% to $191.2 million on a year-over-year basis. The company noted that its operating expenses for the quarter increased 17% sequentially, mainly due to an increase in legal costs, sales commissions and year-end expenses and a modest growth in headcount.
Gross margin of 36% expanded 2,700 basis points (bps) from the year-ago quarter.
The company ended the quarter with cash, cash equivalents and marketable securities of $2.04 billion, down from $2.3 billion as of Sep 30, 2017.
During the quarter, Snap used approximately $176.1 million of cash for operational activities. Free cash outflow was nearly $197.3 million.
Snap’s decision to redesign the application taking into account the technical glitches is boosting its popularity among Android users. Management mentioned a 20% year-over-year increase in Android user retention in the fourth quarter.
Its initiatives to improve service in the international markets are also a positive. Snap’s recent partnership with wireless carriers to reduce cellular bandwidth costs will drive its presence in the international market. The rollout of Stories Everywhere will help Snap gain prominence over the web as well.
The company’s transition to programmatic advertising is also driving growth for the company. Snap’s new ad format called Promoted Stories helps advertising partners to spend more time with the audience.
However, we note that in the first three quarters of 2017, Snap’s slowing user base and revenue growth rates posed concerns. User growth holds the key to attracting advertisers, which is the primary source of revenues for Snap. A slowdown in user base growth rate may look unattractive to advertisers, thus dampening its growth opportunities.
Management forecasts a slowdown in sequential growth in the first quarter as ad spending by large brands increased in the fourth quarter, which includes the important holiday season.
Stiff competition from the likes of Alphabet, Facebook and Twitter in the digital ad market remains an area of major concern. The total addressable market (TAM) of these companies is much larger compared to Snapchat.
In our opinion, advertisers are more likely to opt for Facebook’s Instagram whose TAM is more than twice that of Snap's. To put it simply, it’s unlikely for advertisers to pay for Snap’s services as its reach is limited.
The company therefore, needs to focus more on the redesign of the application to make it simpler and easier to use. Moreover, Snapchat needs to emphasize more on the global market and target other age groups (above 34 year olds) in order to stay ahead in the competition.
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Last year's 2017 Zacks Top 10 Stocks portfolio produced double-digit winners, including FMC Corp. and VMware which racked up stellar gains of +67.9% and +61%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
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Snap (SNAP) Q4 Earnings and Revenues Surpass Estimates
Snap Inc. (SNAP - Free Report) reported loss per share of 13 cents, which was narrower than the Zacks Consensus Estimate of a loss of 15 cents and the year-ago quarter’s loss of 19 cents.
The company reported revenues of $285.7 million, which came ahead of the consensus mark of $251.7 million and grew 72.4% year over year.
The year-over-year increase in revenues is impressive, given the decelerating growth trend that the company witnessed in the past three quarters. In the first, second and third quarters of 2017, the company’s revenues had registered 286%, 153% and 62% year-over-year increase, respectively.
Notably, shares of Snap have lost 42.6% of their value since its listing date of Mar 2, 2017 against 19.5% growth of its industry.
Quarter in Detail
Ad revenues of $281 million in the quarter grew 74% year over year and 38% sequentially. Revenues from other sources contributed the rest. Snap’s transition to automated auction for advertisements resulted in 90% of Snap Ads being bought programmatically during the quarter.
Snap's price per ad impression dropped 25% in the quarter but advertising impressions grew more than four times year over year, which drove results. Management notes that revenues from smaller businesses more than doubled sequentially.
Moreover, Snap’s international revenues (23% of total revenue) increased 12% year over year and 20% sequentially.
The company’s daily active users (DAU) and average revenue per user (ARPU) witnessed year-over-year improvement. DAU increased 18% year over year to 187 million, while ARPU improved 46% to $1.53. Management notes that net addition of 8.9 million DAUs to be the highest since the third quarter of 2016, driven by an increase in Alphabet's (GOOGL - Free Report) Android users.
Notably, on a sequential basis, DAU increased 5%. This is also a positive as the company was witnessing decelerating growth in DAU. In the third quarter, it was a meagre 2.9%, down from 4.2% increase in the second quarter and 5% in the first quarter.
Snap’s costs per user (CoRPU) increased only 2% year over year to 98 cents. The company’s main cost, hosting costs per DAU, was 70 cents, lower than the year-ago quarter figure of 72 cents.
Snap’s cost of revenues increased 24.7% to $191.2 million on a year-over-year basis. The company noted that its operating expenses for the quarter increased 17% sequentially, mainly due to an increase in legal costs, sales commissions and year-end expenses and a modest growth in headcount.
Gross margin of 36% expanded 2,700 basis points (bps) from the year-ago quarter.
The company ended the quarter with cash, cash equivalents and marketable securities of $2.04 billion, down from $2.3 billion as of Sep 30, 2017.
During the quarter, Snap used approximately $176.1 million of cash for operational activities. Free cash outflow was nearly $197.3 million.
Snap Inc. Price, Consensus and EPS Surprise
Snap Inc. Price, Consensus and EPS Surprise | Snap Inc. Quote
Our Take
Snap’s decision to redesign the application taking into account the technical glitches is boosting its popularity among Android users. Management mentioned a 20% year-over-year increase in Android user retention in the fourth quarter.
Its initiatives to improve service in the international markets are also a positive. Snap’s recent partnership with wireless carriers to reduce cellular bandwidth costs will drive its presence in the international market. The rollout of Stories Everywhere will help Snap gain prominence over the web as well.
The company’s transition to programmatic advertising is also driving growth for the company. Snap’s new ad format called Promoted Stories helps advertising partners to spend more time with the audience.
However, we note that in the first three quarters of 2017, Snap’s slowing user base and revenue growth rates posed concerns. User growth holds the key to attracting advertisers, which is the primary source of revenues for Snap. A slowdown in user base growth rate may look unattractive to advertisers, thus dampening its growth opportunities.
Management forecasts a slowdown in sequential growth in the first quarter as ad spending by large brands increased in the fourth quarter, which includes the important holiday season.
Stiff competition from the likes of Alphabet, Facebook and Twitter in the digital ad market remains an area of major concern. The total addressable market (TAM) of these companies is much larger compared to Snapchat.
In our opinion, advertisers are more likely to opt for Facebook’s Instagram whose TAM is more than twice that of Snap's. To put it simply, it’s unlikely for advertisers to pay for Snap’s services as its reach is limited.
The company therefore, needs to focus more on the redesign of the application to make it simpler and easier to use. Moreover, Snapchat needs to emphasize more on the global market and target other age groups (above 34 year olds) in order to stay ahead in the competition.
Snap carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks Top 10 Stocks for 2018
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2018?
Last year's 2017 Zacks Top 10 Stocks portfolio produced double-digit winners, including FMC Corp. and VMware which racked up stellar gains of +67.9% and +61%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
Access Zacks Top 10 Stocks for 2018 today >>