Snap Inc. (NYSE: SNAP) is slated to report third quarter 2019 earnings results on Tuesday, October 22, after the market closes. The company faces tough competition in the social media space from the likes of Facebook’s (NYSE: FB) Instagram and other platforms like TikTok.
Analysts expect Snap to report a loss of $0.05 per share while revenue is expected to grow 46% year-over-year to $435 million. When the results are announced, the focus will largely be on three key metrics – profitability, user growth and monetization.
Profitability
Snap is yet to achieve profitability but the company has managed to narrow its losses over the past couple of quarters, which is a good sign. The forecasted loss of $0.05 per share for the third quarter is lower than the loss of $0.12 per share reported in the prior-year period. The company has also pared its losses through the first half of this year. If Snap reports in-line or better-than-expected bottom line numbers, it could drive an uptick in the stock.
User growth
The second key metric to watch is daily active users (DAUs). Snap saw a steady growth in users until the first quarter of 2018 but the number dipped nearly 2% in the second quarter and remained relatively flat until the first quarter of 2019. User growth increased 7% sequentially and 8% year-over-year in the second quarter of 2019 to 203 million.
It is important to watch this number to see if Snap manages to stay at this level or if any other factor, like rise in competition, causes this number to decline. Last month, the company said Snapchat reaches 90% of all 13-24 year olds and 75% of all 13-34 year olds.
Monetization
The third metric is average revenue per user, or ARPU. Snap’s ARPU tends to dip in the first quarter and then pick up in the following quarters to reach a peak in the fourth quarter. Last quarter the company delivered a 37% growth in ARPU on a year-over-year basis. It is worth noting how the trend keeps up in the third quarter.
Initiatives
Snap is making several efforts to improve its user growth and engagement by rolling out new features and through partnerships. It will be interesting to watch for updates on the Android app, gaming feature and Snap Originals. The company’s partnership with Amazon (NYSE: AMZN) that enables a visual product search for users on Amazon is also likely to benefit the company.
In the second quarter of 2019, Snap beat revenue estimates and reported a narrower-than-expected loss. Revenues grew 48% to $388 million. Adjusted loss per share was $0.06 compared to $0.14 per share in the prior-year period. Snap’s shares have gained 137% so far this year. The majority of analysts have rated the stock as Hold with an average price target of $17.92.
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