Snap’s first earnings to shed light on battle with Facebook, Twitter
NEW YORK – Snap Inc has many similarities with archrivals Facebook Inc and Twitter Inc, but shareholders are eager to avoid one in particular when the social media company reports earnings on Wednesday for the first time since its initial public offering: a plunging stock price.
Investors delivered a stern message of disappointment to Facebook and Twitter when they posted debut quarterly scorecards following their IPOs. Twitter shares cratered 24 percent the following day, while Facebook’s tumbled 11 percent, drops that stand to this day as the biggest one-day losses for both.
While Facebook’s shares recovered from the drubbing within two quarters and trade at nearly four times their $38 IPO price, Twitter’s shares never completely regained lost ground and currently trade down nearly a third from their $26 IPO price. The options market is already positioned for a double-digit swing in Snap shares by the end of this week.
One key to Snap, the owner of the wildly popular Snapchat messaging app, dodging a similar reception from the market rests on whether its user growth and engagement measures meet investors’ expectations as Facebook aggressively copies its most successful features.
The earnings report and subsequent conference call after the bell “will be make it or break it” for Snap, said Eric Kim, co-founder and managing partner at Goodwater Capital. The stock, which started trading in March in the largest tech IPO since Facebook’s in 2012, jumped 44 percent on its debut, but has since fallen 5.5 percent from that day’s closing price. On Wednesday, the shares were down 1.11 percent to $23.06.
FOCUS ON USER GROWTH
Wall Street expects Snap to post a quarterly loss of 19 cents per share, according to Thomson Reuters I/B/E/S. Analysts expect revenue of close to $158 million, roughly four times the $38.8 million figure from a year earlier, but down about 5 percent from $165.7 million for the fourth quarter of last year. But investors will focus on Snapchat’s user numbers and how the service is holding up against encroachments by rivals.
In recent months, Facebook has launched Facebook Stories, a near-identical clone of Snapchat’s most popular feature, also called Stories. The feature lets users post a string of videos and photos that disappear after 24 hours and is also available on other Facebook services, including Instagram and WhatsApp.
“Much of the call should be around Stories as it represents the bulk of Snap’s future value given the importance of video advertising to the company’s relatively nascent business model,” Goodwater’s Kim said. Facebook recently announced that Instagram Stories alone had reached 200 million daily active users (DAU), eclipsing Snapchat’s year-end overall DAU count of around 161 million.
JPMorgan expects Snap’s first-quarter DAU to grow to 169 million, while Monness, Crespi, Hardt & Co Inc is targeting 173 million. Snap still may have an edge over Facebook with its active user base aged between 18 and 34, many of whom visit more than 18 times a day and are a highly coveted group for advertisers.