Snap earnings: After Facebook and Twitter disaster, whither Snapchat?

Snap’s sales and user growth expected to take a hit, the same issues that led to big post-earnings declines from larger rivals

Aug 7, 2018

The self-described camera company has stated that second-quarter revenue, which it is set to report after the closing bell on Tuesday, will see year-over-year growth slow down “significantly” from the first quarter’s 54%. Snap’s user growth could also take a hit from the implementation of Europe’s General Data Protection Regulation, or GDPR, the same types of issues that led to big declines for Facebook and Twitter after those companies issued earnings last month.

Barclays analyst Ross Sandler wrote in a note to clients earlier this month that his team models Snap’s “significant” decline as a drop of larger than 18% in revenue growth, which would place second-quarter revenue at $241 million, a 33% gain compared with the year-earlier period. Sandler has the equivalent of a buy on Snap stock with a $16 price target.

Snap, however, has not dealt with the same level of scrutiny from critics and lawmakers as its social-media rivals, which have faced withering criticism for foreign powers interfering in U.S. national elections, the spread of misinformation and troubling results of such activity, and data-privacy issues brought into the public debate once again by the Cambridge Analytica scandal. That doesn’t mean it’s immune to the ultimate effects: declining revenue growth with little certainty of a reversal in the back half of the year.

GDPR, which pushed Facebook’s user counts down compared with the first quarter, will also likely impact Snap, according to Nomura analyst Mark Kelley. Because of the new regulations it’s possible that the playing field will be leveled in terms of Snap’s ad-targeting capabilities, which were unable to match rival Facebook’s ability to target users. Kelley has a hold on the name with a $13 price target.

Earnings: On average, analysts polled by FactSet expect second-quarter losses of 31 cents a share and adjusted losses of 17 cents a share. Contributors to Estimize, which crowdsources estimates from analysts, fund managers and academics, predict adjusted losses of 17 cents a share, on average.

Sales: Analysts on average project Snap second-quarter revenue of $250 million, up from $182 million in the year-ago quarter. Contributors to Estimize forecast revenue of $251.9 million.

Everything else: Product-wise, the most important change has been the redesigned Snapchat app, which started to roll out during the quarter — celebrities and less high-profile users have expressed frustration with the new approach. The company has said it plans to improve its app for Alphabet Inc.’s Android mobile operating system, which has also been savaged by users for its relative poor implementation compared with the Apple Inc. iOS version.

Also during the quarter Snap launched the second version of its Spectacles product, sunglasses that let people take photos and video and use them within the Snapchat app, the only move by Snap that seems to live up to its claims in Securities and Exchange Commission filings that it is a camera company. The first version was not the success the company had hoped, costing it millions in research and development costs and ultimately not selling nearly as well as expected. Version two launched with decidedly mixed reviews, and it’s likely executives will give investors an update on the new hardware’s progress.

One bright spot for investors should be the fact that the company’s shift to programmatic — or self-serve — ads is nearly complete. Before the use of automated tools for ad purchasing, the company would have had to rely on a cumbersome, essentially manual process of initiating an ad-buying order. Such a system is not scalable for a public company.

The downside of moving to programmatic buying is sliding ad inventory prices, but in the long run it lets Snap capture the long tail of small and midsize businesses, which have powered success for Facebook and Alphabet’s Google.

Snapchat gets $250M investment from Saudi prince for 2.3%

Aug. 7, 2018

Snap Inc got a fresh infusion of cash from the Saudi royal family to help it survive despite losing $353 million this quarter. Prince Al-Waleed Talal tweeted a video of him and Snap CEO Evan Spiegel, noting that he’s invested $250 million in exchange for a 2.3 percent stake in Snap Inc. The investment raises questions about what say the Saudis will have in Snapchat’s direction.

Snap declined to comment on the news. But after an initial 11 percent pop after earnings was announced, Snap sank to be up 4 percent as the user shrinkage and Saudi investment sank in.

Al-Waleed Talal has previously buddied up to the U.S. tech sector, investing in Lyft and Twitter. Elsewhere, he’s recently made investments in European streaming music service Deezer, as well as Chinese ecommerce giant JD.com.

The prince had sat down with Snapchat CEO Evan Spiegel and COO Imran Khan back in 2015 to discuss a possible investment, but nothing came of it until now. The Arabic press release explains that the deal was done on May 25th. “Our investment in Snapchat is an extension of our strategy for personal investment in new technology through leading companies such as Lyft, JD.com, and social networking sites, Twitter” the release explains. “Snapchat is one of the most innovative social networking platforms in the world and we believe it is just beginning to surpass its true potential.”

The extra cash will extend Snapchat’s runway and give it more time to stabilize its business. With its daily user count now shrinking, it will have to find creative ways to squeeze more cash out of those that remain to keep revenue growing. That may take time, and Saudi Arabia just gave it more.

Snap Inc. “is quickly running out of money” and may need to raise capital by the middle of next year...

Snap seesaws on narrower than expected loss

Snap posted a narrower-than-expected loss for its third quarter Thursday, as the company offsets declining user counts with higher revenue per user.

Here's how the company did compared with analyst projections:
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• Loss per share: 12 cents vs. 14 cents forecast by Refinitiv
• Revenue: $298 million vs. $283.2 million forecast by Refinitiv
• Global daily active users (DAUs): 186 million vs. 186.1 million forecast by StreetAccount and FactSet estimates
• ARPU: $1.60 vs. $1.52 forecast by StreetAccount and FactSet estimates

Shares of Snap, which had gained 6 percent during the regular session, seesawed after the report, rising as much as 8 percent in extended trading before plummeting as much as 4 percent negative.

Wall Street was keeping a close eye on active user numbers for Snap's namesake photo-sharing app, Snapchat, as global social media use plateaus. The reported number of 186 million is perfectly in line with projections, but a 1 percent decrease from the previous quarter.

Though Snap is making more money per user than Wall Street had predicted, posting an average revenue per user of $1.60 compared with consensus estimates of $1.52. That suggests the company's monetization efforts might be paying off.

Snap's been tweaking and expanding its third-party advertising offerings and ramping up content partnerships in an effort to reach profitability in 2019.

Snap is projecting fourth quarter revenue between $355 million and $380 million, hovering right around consensus estimates of $370 million, according to Refinitiv.

This is breaking news. Please check back for updates.

Snap’s Disclosures Ahead of IPO Draw Regulator Scrutiny

Nov. 13, 2018 10:48 p.m. ET

Snap Inc. is facing scrutiny from regulators about its disclosures to investors ahead of its 2017 initial public offering.

The disappearing-messages company has received subpoenas and requests for information from the Justice Department and Securities and Exchange Commission, a spokesman for Snap said Tuesday.

Snap said in a statement it believes the regulators are investigating allegations that it didn’t make proper disclosures to investors related to its IPO, issues that had been previously raised in a class-action lawsuit.

“While we do not have complete visibility into these investigations, our understanding is that the DOJ is likely focused on IPO disclosures relating to competition from Instagram,” a spokesman for Snap said in a statement.

Representatives for the SEC and Justice Department didn’t immediately respond to requests for comment.

Snap shares priced at $17 apiece in 2017 following a hotly anticipated roadshow fueled by investor enthusiasm for its popular messaging app, Snapchat, which had quickly grown popular among young people.

Even before the IPO, the company’s user growth had started to stall. Following three quarters of double-digit user growth, Snap in the second half of 2016 posted quarterly user growth of just 7% and 3.3%.

Instagram’s Stories, which Facebook Inc. launched in mid-2016, was perceived as a fresh competitor to Snapchat.

The company’s efforts to reverse the trend haven’t yet taken hold. Since February, Snap has been losing daily users following a redesign of Snapchat that was aimed at broadening its business beyond its core teen and young-adult audience.

As of Sept. 30, it had 186 million daily users, down from about 188 million in the previous quarter, according to securities filings.

Mark Zuckerberg couldn't buy Snapchat years ago, and now he's close to destroying the company

In late 2013, Snap CEO Evan Spiegel reportedly rebuffed a $3 billion takeover offer from Mark Zuckerberg.

Now the Facebook CEO may be having the last laugh.

Snapchat weighs what was once unthinkable - permanent snaps

January 28, 2019

NEW YORK (Reuters) - Snap Inc is considering changes to its Snapchat app, known for disappearing photos and videos, that could make users’ public posts longer lasting or even permanent or until Snap Inc goes bankrupt, people familiar with the matter said.

The company is also weighing an option to reveal the identities of Snapchat users who make public posts, a person familiar with Snap’s plans said.

Together the changes would mark a big step in Snap’s effort to lure and keep users by making content shared publicly via the “Our Story” section, more available outside Snapchat. They could also create a new revenue source for money-losing Snap, which has seen its user base shrink and executives flee the company.

But such changes to Snapchat, which launched in 2011 and became an instant hit among teenagers and millennials, could trigger backlash from users who cherish their privacy, especially as rival Facebook Inc has been plagued by scandals over how it handles user data.

Snap is carefully weighing the privacy, technical and legal considerations of revealing user identities on public posts, said the person familiar with Snap’s plans.

Only Snapchat photo and video content shared to “Our Story”, which shares the snaps publicly to a wider audience and not just a user’s friends, would be affected and users would still have the option of deleting those stories, said the person.

Snap has already extended the shelf life of public stories, but making them last even longer or revealing more about the users who create them would be a further departure from Snapchat’s hallmark features.

The changes would come in response to feedback from Snap’s four partnerships with news discovery platforms that help media companies spot, analyze and republish public breaking news content on Snapchat, sources said. Reuters is a customer of SAM Desk and NewsWhip, two of the news discovery platforms.

The news partnerships are part of Snap’s “Stories Everywhere” initiative, launched last year to push content to more places outside Snapchat.

Initially, public stories would disappear after 30 days but now remain viewable for 90 days, according to Snap’s support website.

Some partners have said that the disappearing and anonymous nature of public stories makes them difficult to work with, the sources said.

Some news organizations will not embed Snapchat stories into articles because the content eventually disappears, while others will not use them because they are unable to verify anonymous users’ Snapchat videos.

One source familiar with the news partnership said Snap is already talking with one partner about making public posts last even longer and to make some content from celebrities permanent.

LUCRATIVE BUSINESS

Snap’s stock has been under pressure as investors question the company’s plan to reach profitability. Snap shares on Friday closed some 60 percent below their March 2017 initial public offering price.

Making user content more valuable for partners has helped boost revenue at Snap’s rivals.

Twitter Inc was one of the first social media platforms to sell access to public posts or tweets and reported $108 million in third-quarter revenue from non-advertising businesses like data licensing, its fastest-growing division.

Twitter sells access to more than 500 million daily tweets to customers including analytics firms, news organizations and financial institutions that use trending tickers and stories to place trades.

Snap does not currently charge for access to public data, but could earn more advertising revenue if snaps embedded outside of Snapchat last longer, said Debra Aho Williamson, a social media marketing analyst with research firm eMarketer.

“The advertising would be visible for longer, and I could see advertisers paying more for it,” Williamson said.

Snapchat’s video-heavy posts also offer elements that Twitter and Facebook’s largely text content cannot, especially in breaking news events, one of the sources said.

Snap price target cut to $5 at Morgan Stanley on user-growth fears

Jan 24, 2019

Morgan Stanley analyst Brian Nowak slashed his Snap Inc. price target to $5 from $7 on Thursday, while decreasing his estimates for the company's daily active counts over the next few years. "At a high level, we expect Snap's smaller user base to be a further headwind to revenue growth (fewer eyeballs, ad impressions, and time to monetize)," he wrote. "In addition, our latest industry conversations continue to point to ad performance and monetization challenges around the 'Stories' format across the ecosystem (Instagram, Facebook, and Snapchat.)"

He's heard that some advertisers are moving dollars away from Snap and onto Facebook Inc. properties due to the social media giant's reach and targeting technology. Nowak doesn't think that Snap can cut costs enough to make up for its shortcomings elsewhere and predicts that the company won't generate positive free-cash flow until 2022.

Snap adds TikTok, one of the hottest social networking apps, to its list of competitors

Snap has added a new foe to its growing list of competitors.

The company on Wednesday added TikTok, an up-and-coming social app that is owned by China-based company ByteDance, to the list of companies that it considers to be competitors, according to a company filing with the SEC. TikTok joins a list of Snap competitors that includes top name likes Facebook, YouTube and Twitter, among others.

TikTok is an app that lets users watch and create short videos that are set to popular songs. The app has drawn comparisons to Vine, the once popular video app that was owned and shut down by Twitter.

The app currently ranks No. 3 on the Apple's U.S. App Store's list of top free apps, behind only Instagram and YouTube. TikTok, which is known as Douyin in China, has a reported 500 million monthly active users across the globe.

This isn't the first time a major U.S. social company took notice of TikTok. In November, Facebook released Lasso, an app that copies many of TikTok's features.

Q1 2019 Outlook

• Revenue is expected to be between $285 million and $310 million, or grow between 24% and 34% compared to Q1 2018.
• Adjusted EBITDA is expected to be between $(165) million and $(140) million, compared to $(218) million in Q1 2018.

Snap bites back at prediction of shrinking Snapchat user base

Apr 11, 2019

Snap Inc. shares sank Wednesday after a forecast predicted that Snapchat’s user base would shrink for the first time this year, but the company fought back against the study and called it “flawed.”

. . . .

Snap shares fell by as much as 6.3% in Wednesday morning trading after the forecast was released, but the stock bounced back and ended the session with a loss of 2.7% after Snap strongly disagreed with the forecast.

In a statement, a spokesman for the company called eMarketer’s methodology “flawed,” noted a recent Android app update that the company thinks will be a positive, and reiterated that Snap forecast flat user growth for the first quarter in its most recent earnings report.

. . . .

Q1 2019 Summary & Key Highlights

We started the year increasing Daily Active Users and enhancing engagement across key metrics:

• DAUs were 190 million in Q1 2019, compared to 186 million in Q4 2018 and 191 million in Q1 2018.
• As of March, Snapchat reaches 90% of all 13-24 year-olds and 75% of all 13-34 year-olds in the U.S.

Q2 2019 Outlook

• Revenue is expected to be between $335 million and $360 million, or grow between 28% and 37% compared to Q2 2018.
• Adjusted EBITDA is expected to be between $(150) million and $(125) million, compared to $(169) million in Q2 2018.

What to expect

Earnings: Analysts surveyed by FactSet model a 5-cent-per-share adjusted loss for the third quarter. According to Estimize, which crowdsources projections from hedge funds, academics and others, the average estimate calls for a 3-cent loss per share. A year ago, Snap lost 12 cents a share.

Revenue: The FactSet consensus is for $435 million in third-quarter revenue, up from $298 million a year earlier. The Estimize consensus is for $441.4 million.