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Snap (SNAP) to Report Q2 Earnings: What's in the Cards?

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Snap Inc. (SNAP - Free Report) is set to report second-quarter 2019 results on Jul 23.

The company’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average being 24.7%.

In the last reported quarter, the company’s loss of 10 cents per share was narrower than the Zacks Consensus Estimate of a loss of 12 cents and the year-ago quarterly loss of 17 cents as well.

However, revenues surged 38.9% from the year-ago quarter to $320.4 million, surpassing the consensus mark of $306 million.

Snap’s subscriber growth, reflected by Daily Active Users (DAUs), was down 1 million year over year but grew 4 million sequentially to 190 million.

Guidance and Estimates for Q2

For the second quarter, the company expects revenues between $335 million and $360 million, indicating growth of 28-37% from the year-ago reported figure.

The Zacks Consensus Estimate for revenues is currently pegged at $358.5 million, suggesting a 36.7% surge from the prior-year reported number.

Moreover, the consensus mark for loss is retained at 10 cents over the past 30 days.

Snap Inc. Price and EPS Surprise

Snap Inc. Price and EPS Surprise

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

Let’s see how things are shaping up for the upcoming announcement.

Factors at Play

Snap’s second-quarter results are likely to be driven by the company’s innovation strategies, which are aiding growth in DAU and user engagement.

Notably, the company’s focus on adding a number of features is making its Snapchat platform more attractive to users and advertisers. Growing adoption of the platform among the millennials and the Gen Z in the key markets like the United States is likely to remain a key driver. 

The launch of Snap Games, expansion of its Discover platform and the addition of several augmented reality (AR) features are an upside.The release of 10 Snap Original Shows in May this year is also likely to have boosted engagement further in the soon-to-be-reported quarter.

Moreover, the successful roll-out of the Android app is expected to have drawn more users to the platform in the second quarter. Per Goldman Sachs estimates, total app download in the May hit a record 41 million compared with “multi-year lows in app downloads that the platform experienced through most of 2018 and early 2019,”

Further, acceleration in average revenues per user (ARPU), which increased 39% year over year in the last reported quarter, is likely to remain a tailwind in the June quarter.

However, advertising is the company’s only source of revenues, which suffers a persistent decline in price per ad impression.

The company is apprehensive about the fact that improvement in performance and new user retention will take time to materialise and meaningfully impact its top line in the coming quarters. As a result, seasonality in DAU growth may affect the quarterly results.

Further, an anticipated disturbance in its near-term business due to reorganization of the sales team is a woe. Moreover, increasing infrastructure costs and higher investments in content, sales and marketing are lingering overhangs on the margins. These make us anxious about the upcoming quarterly results.

What Our Model Says               

The proven Zacks model shows that a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has maximum chances of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Snap currently carries a Zacks Rank #2, which increases the predictive power of ESP. However, its Earnings ESP of 0.00% in the combination makes surprise prediction difficult.

Stocks to Consider

Here are some stocks that you may consider as our model shows that these have the right combination of elements to beat on earnings in their upcoming releases:

 United States Cellular Corporation (USM - Free Report) has an Earnings ESP of +15.66% and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

CGI Group, Inc. (GIB - Free Report) has an Earnings ESP of +1.27% and a Zacks Rank of 2.

NetEase, Inc. (NTES - Free Report) has an Earnings ESP of +8.63% and is a Zacks #2 Ranked player.

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