Snap’s Tailspin Will Worsen Into Earnings
Estimize | Mar 20, 2017 10:00AM ET
Snap Inc. (NYSE:SNAP): Information Technology - Internet Software & Services | Estimated Report Data April 25, After Market Closes.h3 Key Takeaways/h3
- Analysts at Estimize expect 57% decline on the bottom line to negative 17 cent per share on $193.25 million in revenue, roughly $395% higher than the same period last year.
Snap opened for public trading nearly two weeks ago with polarizing expectations about the near-term future. Many market commentators predicted the stock would fall flat due to weak underlying fundamentals but that didn’t stop millennials from grabbing a piece of the action.
At the outset, shares nearly touched $30 on a rich $40 billion valuation, making it more expensive than popular brands like Twitter (NYSE:TWTR), Hilton (NYSE:HLT) and Best Buy (NYSE:BBY). But its post-IPO twinkle lost its shine in a mere 2 days as much of the initial excitement started to fade. Snap now trades nearly $4 below its $24 debut price with new Wall Street analysts emerging each day to issue disparaging sell ratings. The most troubling trends analysts take exception with concentrate on Snap’s unclear path to profitability, questionable ability to draw in new ad revenue and decelerating user growth.
Although Snap calls itself a camera company, its core business still revolves around the 150 million daily active users sending messages that automatically disappear in a matter of seconds. In order to move higher, Snap must focus on driving users, which inevitably pulls ad dollars, -- not selling sunglasses that liken it to beleaguered camera maker GoPro (NASDAQ:GPRO).
Some fear that Snap already reached a critical mass of core users and doesn’t hold the same appeal with middle-aged or retired audiences -- one of the biggest differences between Facebook (NASDAQ:FB) and Snap. The Zuckerberg led network effectively provides users a platform to reconnect and catch up with past friends whereas Snap’s target audience doesn’t extend beyond millennials. Meanwhile, the launch of Instagram Stories, a near replica of SnapChat, puts Snap at risk of losing some of its established user base.
In any case, the “camera company” faces an uphill battle that will only worsen if quarterly results miss analyst’s targets. Initial estimates on Estimize forecast steepening losses and decelerating revenue growth. Analysts expect earnings to drop 57% to 17 cents per share on a 395% increase in revenue to $193.26 million. On the surface, projected revenue growth may be reassuring but compared to previous quarters when Snap was private, it reflects a slight slowdown.
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