Can Snap (SNAP) finally break its losing streak? The parent of popular messaging app Snapchat just can’t get any love. But is it time to bet on a recovery? Although the company is having a tough time fighting off larger rival Facebook (FB), some believe the worst is over.
Snap will report fourth quarter fiscal 2018 earnings results after Wednesday’s closing bell. Eric Ross, chief investment strategist at Cascend Securities, believes the company could be at an inflection point. In a research note last Friday, Ross upgraded Snap stock from Sell to Hold, saying Snap’s fumbled app redesign for Android “have snapped back to positive.” On the report, Snap shares climbed as high as 7%.
The stock, currently trading around $7, is down some 60% from its $17-per-share initial public offering price in 2017. The punishment has been driven by (among other things) weak user growth metrics and stiff competition from Facebook-owned Instagram. While the company is still highly popular among a younger demographic, Snap struggles to attract the older generation (above 34 year olds), who are typically higher income earners and thus attractive to advertisers.
In the third quarter, Snap’s Daily Active Users (DAU) rose 5% year over year to 186 million, but declined 1% from the second quarter. Meanwhile, its North America DAU of 79 million rose 3% year over year, yet declined 1.3% sequentially. Will these declining trends, caused by the delay in the Android app design launch, continue? On Tuesday analysts will focus on the company’s user engagement metrics, while monitoring how the company guides for the next quarter and full year.
For the quarter that ended December, Wall Street expects Snap to report a per-share loss of 8 cents on revenue of $375.82 million. This compares to the year-ago quarter when the loss came to 13 cents per share on revenue of $285.69 million. For the full year, the loss is expected to be 52 cents per share, compared to a 61-cent loss a year ago, while full-year revenue of $1.17 billion would rise 41% year over year.
The downbeat quarterly and full year metrics, driven by lower ad prices, are among the reasons for the expected revenue decline. And it hasn’t helped that the company has experienced and executive exodus over the past couple of years. More recently, Snap’s vice president of content Nick Bell and hardware chief Sahil Sharma have decided to leave the company. Still, CEO Evan Spiegel remains steadfast that the company is moving in the right direction.
Among other initiatives, Snap’s shift to an automated or programmatic ad delivery system has increased the number of advertisers on the platform. Through its partnership with Amazon (AMZN), the company is also improving shopping experience of its users through the Snapchat camera. These areas are encouraging. And to the extent the company can show that new users are coming back to the platform and it can attract a slightly-older demographic, Snap stock could be a turnaround story in 2019.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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