Snap (SNAP) To Report Q4 Earnings: What's In The Cards?

Snap Inc. (NYSE:SNAP) is set to report fourth-quarter 2017 results on Feb 6.

Last quarter, the company reported loss per share of 14 cents, in line with the Zacks Consensus Estimate but wider than the year-ago quarter’s loss of 13 cents.

Snap reported revenues of $207.9 million, which missed the Zacks Consensus Estimate of $233.1 million but grew 62% year over year. However, the revenue growth rate came down significantly when compared with the past quarters.

Snap has been trying to combat all odds by introducing new tools and features to boost engagement and user growth.This is expected to drive growth in the soon-to-be reported quarter. However, we anticipate the rate of growth to decline, continuing the trend of the previous three quarters.

Let's see how things are shaping up for this announcement.

Factors at Play

Snap is entirely dependent on user base growth and ad revenues, which unfortunately havebeen showing a decelerating trend over the last few quarters.

In late 2016, the company launched a hardware product, Spectacles, to diversify its revenue stream. However, we note that it has not yet been able to generate significant revenues for Snap. Per USA Today, Spectacles is the biggest tech turkey of 2017 and therefore it’s unlikely to contribute this quarter as well.

Snap’s flagship application, Snapchat, is highly popular among teenagers, given its attractive features. In the fourth quarter, Snap announced a redesign of Snapchat by separating posts made by friends and the ones made by publishers in an attempt to make the platform more userfriendly.

However, the latest redesign of the app is a concern. CEO Evan Spiegel mentioned on the last conference call that given the uncertainty surrounding the app’s adoption, it is likely that the redesign will prove to be a headwind for the business in the short run.

Snap has also undertakeninitiatives to attract the older generation (above 34 year olds). To attract them, Snap added Walt Disney owned sports television channel, ESPN’s SportsCenter show to its platform in the quarter as the older generation ismore likely to watch ESPN shows.

In November, Snap introduced advertising tools, Promoted Stories and Augmented Reality (AR) Trial, in a bid to attract more advertisers to the platform, and thereby boost its top line.

However, growing competition from Facebook (NASDAQ:FB) is a major headwind for the company. To boost its top line, Facebook is trying to lure users to its platforms. Per a recent survey conducted by investment firm Cowen, 96% of the 50 U.S. ad buyers surveyed preferred Snap’s arch rival Facebook Instagram Stories, a blatant copy of Snapchat’s feature of the same name, for advertisements compared with just 4% who backed Snap Ads.

In our opinion, though Snap’s rising user base is a positive, it may not be able to cash in on it like Facebook. The social media giant reported its quarterly earnings recently, wherein its Advertising revenues soared 48.1% year over year to $12.78 billion.

Given the limited reach of Snap’s services, advertisers are more likely to opt for other platforms such as Alphabet (NASDAQ:GOOGL) , Facebook and Twitter (NYSE:TWTR) as the total addressable market (TAM) of these companies is much larger compared to Snapchat. Therefore, they present a much larger canvas for advertisers.

We believe Snap’s lack of popularity in the international quarters, its sole focus on under-34 users and revenue concentration are the primary headwinds ahead of the fourth-quarter earnings.

Snap Inc. Price and EPS Surprise

Snap Inc. Price and EPS Surprise | Snap Inc. Quote

What Our Model Says

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

Snap has a Zacks Rank #3 and its Earnings ESP is -4.43%. Therefore, our proven model does not conclusively show that the company is likely to deliver a positive surprise this quarter.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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