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Why Is Snap (SNAP) Down 17.3% Since Last Earnings Report?

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It has been about a month since the last earnings report for Snap (SNAP - Free Report) . Shares have lost about 17.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Snap due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Snap reported second-quarter 2018 loss of 14 cents per share, narrower than the Zacks Consensus Estimate of a loss of 17 cents and year-ago quarter’s loss of 16 cents.

Revenues surged 44.4% from the year-ago quarter to $262.3 million, better than the consensus mark of $250 million.

Geographically, revenues from North America (67.6% of revenues) increased 20.2% year over year to $177.4 million. Revenues from Europe (15.3%) soared 81.9% to $40.2 million. Rest of the World (ROW) revenues were $44.6 million compared with $12 million in the year-ago quarter.

Top-Line Details

Advertising revenues jumped 48% year over year to $260 million, primarily driven by solid traction in Snap’s global online sales business (which includes SMBs and sales partners) and strong growth in international countries.

Snap Ad impressions grew 191% year over year, while price per ad impression dropped 52% in the quarter.

Of the total Snap Ads, 75% were bought programmatically. Programmatic advertising revenues soared 485% year over year and 34% sequentially. Programmatic impressions jumped 722% from the year-ago quarter and 47% sequentially. However, pricing was down 29% year over year and 9% sequentially.

Snap’s Daily Active Users (DAU) increased 8% year over year but decreased 2% sequentially to 188 million. North America DAU was 80 million, up 7% year over year but down 1.2% sequentially. Management attributed the sequential decline to the lower usage of the Snapchat application, primarily due to the redesign.

Average revenues per user (ARPU) jumped 34% year over year and 16% sequentially to $1.40. North America, Europe and ROW ARPUs increased 12%, 70% and 233%, respectively.

In the quarter, 11 shows reached a monthly audience of over 10 million. Management stated that average user spending time on Snapchat on a daily basis was over 30 minutes in the quarter.

Moreover, new user retention rate improved. New user retention for people older than 35 years has increased more than 8% since the launch of the redesigned Snapchat app.

Snap has been focusing on improving Android-based new user retention that has increased roughly 20% since fourth-quarter 2016.

New Product Details

During the quarter, Snap introduced Group Video Chat that allows users to video chat with up to 16 friends at one time.

Moreover, the company launched Snappables, new Lenses for sharing augmented reality (AR) experiences with one or many friends. Users can control Snappables using touch, motion, and facial expressions.

Further, a new version of Spectacles was released.

Snap Kit was launched in the quarter to help developers build products. The company also inked partnerships with Pandora and Tinder to share features on the platforms.

Snap also introduced Lens Explorer in the quarter. The company stated that since the launch of Lens Studio in late 2017, creators have submitted over 100K unique Lenses that have been viewed by Snapchat users over 3.5 billion times.

Balance Sheet and Cash Flow

Snap ended the quarter with cash, cash equivalents and marketable securities of $1.57 billion, down from $1.82 billion as of Mar 31, 2018.

During the quarter, Snap used approximately $199.3 million of cash. Free cash outflow was $234.2 million.

Guidance

For the third quarter, Snap expects revenues between $265 million and $290 million, reflecting growth of 27-39%.

Adjusted EBITDA loss is expected to be between $185 million and $160 million compared with loss of $179 million reported in the year-ago quarter.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 7.25% due to these changes.

VGM Scores

Currently, Snap has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Snap has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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