- Snapchat's parent company Snap Inc. reports its Q2 2018 financial results on Tuesday.
- Many analysts are predicting a disappointing quarter, with flatlining user growth.
- The once-buzzy startup has made a number of significant missteps since going public in March 2017, and public consensus on it has soured.
It's been a bumpy year and a half for Snap Inc.
In March 2017, the parent company of Snapchat went public, buoyed by a wave of hype — but since then it has been plagued by difficulties, from Instagram aggressively moving in on its turf and issues with growth to a disastrous redesign, and its current stock price ($13) is less than half of what it was after the IPO ($27).
On Tuesday, the California company announces its Q2 earnings — and it's fair to say that most Wall Street analysts aren't exactly waiting with bated breath.
Wells Fargo expects a drop-off in daily active users (DAUs), and set a price target for the stock of $12: "While we see some cause for improving sentiment—namely that usage trends have stabilized after SNAP undid much of its app redesign and that ad pricing may have bottomed out, with advertisers noting increasingly attractive pricing in recent trade press coverage—we are lowering estimates for SNAP as we take a more conservative view on daily active users (we now forecast a modest sequential decline), revisit [management] monetization commentary and incorporate recent advertiser checks into our 2Q view."
Analysts at Wedbush and RBC Capital Markets, meanwhile, follow the street consensus and expect to see user numbers flatline.
Needham's analysts slashed their expectations for Snap's quarter, but raised their estimates — because of the company's "aggressive cost cutting."
"We lower our SNAP revenue estimates by 15% for 2Q18 and by 5% for FY18, based on lowered DAU growth projections and our channel checks, which suggest a dramatic slowdown of spending by brands on SNAP in 2Q vs 1Q. On a same-store basis, brand spending on SNAP halved (from up 80% in 1Q18A to up 45% so far in 2Q18E), owing to big events (Grammys, Super Bowl, NCAA finals, etc) in 1Q18 not repeated in 2Q18 and brand’s FYEs," they wrote in a research note in June.
"We raise our profit estimates for SNAP owing to aggressive cost cutting. We retain an Underperform rating until we see positive DAU momentum. SNAP’s recent decision to open its platform to third party developers (ex: Pandora) should aid user growth."
A particularly brusing note from Rich Greenfield at BTIG listed Snap's repeated missteps — from Spectacles to traffic drop-off on Discover — adding: "With a market cap still above $17 billion, Snapchat’s valuation appears absurd relative to our revised forecasts ... So why not go to SELL? While we are tempted, sentiment on the stock is horrible and small 'successes' could lead to an overreaction of the stock (as we saw in Q4). But more importantly, we are still intrigued by the stickiness of the app as a communications platform. While our patience is wearing thin and we hate being wrong, there is a massive shift of consumer time spent to mobile with few ways to participate outside of the dominance of Facebook and Google. We are also intrigued that a 20-year Amazon veteran, Tim Stone, decided to join Snapchat as its CFO in May.
Analysts at Barclays are more optimistic, predicting an "upbeat" second half of the year following the hire of a new CFO, and setting a price target for the stock of $16.
"SNAP is likely to report revenue and DAU in-line to slightly below consensus in 2Q, but point to momentum building into 2H on the back of the Android re-write and R-squared (the redesign of the redesign). Consensus estimates don’t really capture management’s guidance for DAU (likely below 191m) or revenue to decelerate 'significantly' (i.e. – above the 18 points from 4Q to 1Q). We think the buyside understands this, but given operating losses and cash burn, any downward estimate revisions are likely to mean short-term weakness in shares," they wrote.
"Stepping back from the print, we think SNAP might be “getting out of the woods” in 2H18 with a new CFO, a new Android stack (solving the biggest problem the past year-plus) and lapping the CPM reductions. Hence we would add to positions on any weakness related to 2Q."
