Snapchat parent Snap Inc. reports earnings after the market closes on Tuesday, Nov. 7. Here’s a look at what might be expected from its third-quarter report.
Snap Inc. (SNAP), the parent company of Snapchat, reports third-quarter earnings after the market closes on Tuesday, Nov. 7. As has been in the case in the company’s other quarters since going public, analysts are likely to remain focused on user growth and monetization efforts.
In the second quarter, SNAP reported daily active users, or DAUs, increased 21% year-over-year to 173 million. On a sequential basis, that growth was slower and DAUs increased 4% from 166 million in the first quarter of 2017, according to the company. From that user base in the second quarter, SNAP reported it generated $1.05 in average revenue per user, or ARPU, an increase of 109% year-over-year and 16% quarter-over-quarter.
Several analysts and research firms have recently lowered revenue growth expectations, likely due in part to slower-than-expected user growth in recent quarters. Market research firm eMarketer expects SNAP to generate total revenue of $774.1 million this year, down from its previous estimate of $900 million. Looking ahead to 2018, eMarketer expects revenue to grow 90% year-over-year to $1.47 billion.
Like other social media companies, SNAP started by building an audience, and then focused on monetizing its product. According to CEO Evan Spiegel on last quarter’s earnings call, the company’s efforts in that area are “progressing nicely, although we are still in the very early stages as we continue to build out our self-serve and programmatic infrastructure.”
SNAP rolled out self-serve tools for advertisers earlier in the year, and it has made a string of acquisitions in recent months to enhance its advertising offerings. Some of the recent acquisitions include data company Placed, which SNAP said was “acquired to enhance advertising effectiveness” in a filing with the U.S. Securities and Exchange Commission, and TechCrunch just reported that SNAP had acquired Metamarkets, an ad tech startup. Those acquisitions, as well as management’s ongoing monetization efforts, could be an area of focus for analysts on tomorrow’s call.
The company’s hardware division is another area analysts could focus on, although it’s a much smaller portion of the company than its advertising business. Despite calling itself “a camera company”, SNAP makes just one camera in the traditional sense, its Spectacles. In September, Bloomberg reported SNAP had shuffled leadership in its hardware division, with Mark Randall transitioning from his role of vice president of operations to take over hardware.
FIGURE 1: SNAP YTD PERFORMANCE.
Snap Inc. (SNAP) shares, charted above, are down 11.3% from their $17 IPO price, and have declined 37.62% from their debut price in March. The bottom chart shows the stock’s implied volatility over the same time period. Chart source: thinkorswim® by TD Ameritrade. Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.
When it releases results tomorrow afternoon, SNAP is expected to report an adjusted loss of $0.14 per share, down from an adjusted loss of $0.13 in the prior-year quarter, on revenue of $233 million, according to third-party consensus analyst estimates. Revenue is expected to increase 81.8% year-over-year, a drop from the 153% year-over-year increase reported in the second quarter.
SNAP is well below its post-IPO peak of $29.44, and shares have declined 37.62% since its debut. However, the stock has moved up quite a bit from its August low of $11.28, closing at $15.27 on Friday—still a bit under the $17 IPO price.
Options traders are expecting a big move around the upcoming earnings release, pricing in about a 12.5% potential share price move in either direction, according to the Market Maker Move indicator on the thinkorswim® platform.
In short-term trading at the November 10 expiration, calls have been active at the 15 and 16 strike prices, with a decent amount of activity at the 17 strike. On the put side, most of the trading has been at the 14 and 15 strikes. Implied volatility has been ticking up ahead of the earnings report, although it’s quite a bit lower than it was when SNAP reported in August.
Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.
Earnings season continues this week with 40 companies in the S&P 500 (SPX) slated to report. In terms of economic data, it’s a somewhat quieter week: JOLTs Job Openings for September come out on Tuesday morning, the U.S. Energy Information Administration releases crude oil inventories on Wednesday morning and the University of Michigan’s Consumer Sentiment Index comes out on Friday.
Also, Fed Chair Janet Yellen is scheduled to speak tomorrow afternoon, which could be an interesting one since it’s her first speech following President Trump’s nomination of Jay Powell to replace her in February. If you have time, don’t forget to check out today’s market update to see what else is happening.
Good Trading, JJ @TDAJJKinahan
for thinkMoney ®
Financial Communications Society 2016
for Ticker Tape
Content Marketing Awards 2016
Probability analysis results from the Market Maker
Move indicator are theoretical in nature, not guaranteed, and do not
reflect any degree of certainty of an event occurring.
TD Ameritrade and all third parties mentioned are
separate and unaffiliated companies, and are not responsible for each other's
policies or services.
Inclusion of specific security names in this commentary
does not constitute a recommendation from TD Ameritrade to buy, sell, or
Market volatility, volume, and system availability may
delay account access and trade executions.
Past performance of a security or strategy does not
guarantee future results or success.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2018 TD Ameritrade.