Australia markets closed

Snap (SNAP) to Report Q3 Earnings: What's in the Cards?

Zacks Equity Research

Snap SNAP is set to report third-quarter 2019 results on Oct 22.

The company expects revenues between $410 million and $435 million. The Zacks Consensus Estimate for third-quarter revenues is currently pegged at $437.6 million, which indicates growth of 47% from the year-ago quarter’s reported figure.

Notably, in the last reported quarter, Snap’s subscriber growth reflected by Daily Active Users (DAUs) increased 13 million sequentially to 203 million. The Zacks Consensus Estimate for DAUs in the to-be-reported quarter is currently pegged at 207 million.

Meanwhile, the consensus mark for loss remained at 5 cents over the past 30 days. Notably, Snap reported second-quarter 2019 loss of 6 cents per share, narrower than the Zacks Consensus Estimate of a loss of 10 cents and the year-ago quarter’s loss of 14 cents.

The company beat the Zacks Consensus Estimate in the trailing four quarters, delivering average positive earnings surprise of 30.2%.

Snap Inc. Price and EPS Surprise

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

Factors to Influence Results

Snap’s focus on continuously adding innovative features, like Lens Studio 2.0, is making the Snapchat platform more attractive to users and advertisers. Moreover, the successful rollout of the Android app of Snapchat (in April) is likely to have drawn more users to the platform in the third quarter.

Further, the growing adoption of the platform among the millennials and the Gen Z is expected to have driven DAUs and in turn the top line in the to-be-reported quarter. Additionally, ARPU improved 36.4% year over year in the second quarter, a trend that most likely continued in the third quarter.

The launch of Snap Games, Tab feature on the Friends, the expansion of its Discover platform and the addition of several AR features are also likely to have boosted user engagement in the quarter. Further, the growing popularity of original shows — Snap’s three-five-minute premium episodes that are vertically shot and quickly paced — is expected to have driven user engagement in the to-be-reported quarter.

However, a persistent decline in price per ad impression, which was down 34% year over year in the last reported quarter, is likely to have negatively impacted advertising revenues in the third quarter. Notably, advertising is Snap’s only source of revenues and the company faces significant competition from the likes of Facebook FB, Google and Pinterest for ad dollars.

Moreover, increasing infrastructure costs and higher investments in content, sales and marketing are lingering overhangs on profitability. Hence, the third-quarter bottom line is expected to reflect the negative impact of rising expenses.

Key Q3 Developments

Snap expanded its originals content portfolio with the announcement of new shows — Tekashi69 VS The World, Nikita Unfiltered, The Honeybeez, Driven, Mind Yourself, Everything’s Fine, Players and Save Me. The company also renewed shows like Bringing Up Bhabie by Invent TV, Two Sides by New Form, and Kappa Crypto.

Snap continued to launch innovative products during the quarter. On Sep 17, the company introduced a 3D Camera Mode that adds depth to a user’s snap. The company also released new 3D effects that users can swipe on in the Filter Carousel.

Moreover, on Aug 13, Snap revealed Spectacles 3, which features two HD cameras to capture snaps in 3D and transform them with 3D effects. The company is set to begin shipment of the sunglasses in fall 2019.

Further, on Jul 15, Snap and Baidu announced the renewal of their sales partnership, which first began in May 2017. The agreement authorizes Baidu to act as Snap’s representative to advertisers in Greater China, Japan and South Korea.

What Our Model Says

According to the proven Zacks model, a company with a positive Earnings ESP along with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates.

Snap has an Earnings ESP of 0.00% and a Zacks Rank #2, which makes surprise prediction difficult. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks That Warrant a Look

Here are a couple of stocks you may want to consider, as our model shows that these have the right combination of elements to deliver an earnings beat.

Commvault Systems CVLT has an Earnings ESP of +2.66% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Avnet AVT has an Earnings ESP of +2.68% and a Zacks Rank #3.

Biggest Tech Breakthrough in a Generation

Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.

A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 7 stocks to watch. The report is only available for a limited time.

See 7 breakthrough stocks now>>

Click to get this free report Facebook, Inc. (FB) : Free Stock Analysis Report Snap Inc. (SNAP) : Free Stock Analysis Report CommVault Systems, Inc. (CVLT) : Free Stock Analysis Report Avnet, Inc. (AVT) : Free Stock Analysis Report To read this article on click here. Zacks Investment Research