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July 23, 2019, 7:22 a.m. EDT

Snap earnings: With stock up more than 170%, investors looking for turnaround

Analyst sees room for ‘massive upside surprise’ on user growth after shares have nearly tripled in 2019

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By Emily Bary


Daniel Acker/Bloomberg

Snap Inc. shares have soared this year on expectations that the company is finally turning its business around, and the Snapchat maker will be looking to prove that narrative next Tuesday when it reports second-quarter earnings after the closing bell.

What to expect

Earnings: Analysts surveyed by FactSet project that Snap /zigman2/quotes/205087158/composite SNAP +4.79%  lost 22 cents a share on an adjusted basis, compared with a loss of 14 cents a year earlier. According to Estimize, which crowdsources projections from hedge funds, academics, and others, the average estimate is for an 8-cent loss.

Revenue: The FactSet consensus calls for $360 million in revenue, while the Estimize consensus models $363 million. A year prior, Snap posted revenue of $262 million.

Stock movement: Snap shares have only posted gains following two of the company’s nine earnings reports since it went public. The stock tends to make big swings, moving by a double-digit percentage the day after seven of the nine reports.

Shares have enjoyed a big rally so far this year, rising 174% as the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.0029%  has climbed 20%. Of the 38 analysts tracked by FactSet who cover the stock, eight have buy ratings, 24 have hold ratings, and six have sell ratings. The average price target is $13.19, 13% below current levels.

/zigman2/quotes/205087158/composite SNAP 14.61, +0.67, +4.79%

What to watch for

Snap has finally updated its Android app and introduced new buzz-worthy features, developments that are expected to have drawn more users to the Snapchat app in recent months.

“With the Android rebuild stunting user growth for much of 2018, the launch of the updated app is supporting a resurgence in Android users,” wrote Jefferies analyst Brent Thill, who expects that time spent on the Snapchat app “is relatively stable.” He has a hold rating on the shares.

Goldman Sachs’ Heath Terry, who rates the stock a buy with a $18 price target, sees “positive trends in user growth and engagement.”

The FactSet consensus models that Snap had 191.9 million daily active users during the quarter, up from 190 million in the March period and 188 million a year earlier. That count might end up being even higher, however: Analysts at both Bank of America and MoffettNathanson have argued that Snap could positively surprise with its user numbers.

Read: Snap shorts are down $1 billion in paper losses this year

Terry expects that Snap has made progress on the advertising front as well.

“Our checks with advertisers also lead us to believe that the company’s continued innovation in its ad-stack, particularly in self-serve, should allow Snap to substantially improve monetization of user time spent on the platform over time,” he wrote.

Credit Suisse’s Stephen Ju sees “significant room for the company to increase the ad load in pursuit of revenue growth” and projects that Snap’s ad revenue will accelerate by the second half of the year, if not earlier. He has an outperform rating and $18 target price on the stock.

Snap might also be able to capitalize on some of Instagram’s recent progress in order to better monetize its own platform. “Given the success of Stories on Instagram and Facebook /zigman2/quotes/205064656/composite FB -0.36% , Snap may be attracting renewed advertiser interest for its own Stories product,” wrote MoffettNathanson analyst Michael Nathanson, who rates the shares at neutral with a $10 target.

Nathanson also points to the likelihood of a “massive upside surprise” in daily active users, citing his analysis of the Snapchat Ads Manager tool, which suggests “a tremendous +15 million surge in users since March.”

/zigman2/quotes/205087158/composite
US : U.S.: NYSE
$ 14.61
+0.67 +4.79%
Volume: 13.06M
Nov. 18, 2019 11:33a
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$19.52 billion
Rev. per Employee
$409,309
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/zigman2/quotes/210599714/realtime
US : S&P US
3,120.55
+0.09 +0.0029%
Volume: 567.36M
Nov. 18, 2019 11:33a
loading...
/zigman2/quotes/205064656/composite
US : U.S.: Nasdaq
$ 194.39
-0.71 -0.36%
Volume: 4.34M
Nov. 18, 2019 11:33a
P/E Ratio
30.96
Dividend Yield
N/A
Market Cap
$556.52 billion
Rev. per Employee
$1.57M
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Emily Bary is a MarketWatch reporter based in New York.

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