Snap’s earnings report puts it up for fresh judging by skeptical investors

Snap Inc. reports earnings for the second time as a publicly traded company Thursday.
(Carolyn Cole / Los Angeles Times)

Snap Inc. closed the second quarter with new hardware — picking up three gold awards for its Spectacles sunglasses at the glitzy Cannes advertising festival on the French Riviera.

But on Thursday, when Snap releases its second-quarter earnings report, it faces a more crucial panel of judges: an investment community deeply skeptical about the company’s prospects.

Snap shares have fallen more than 40% since its last earning report, with some of the drop fueled by an increase in tradable shares. In the last month, 10 financial analysts have lowered their long-term target for Snap’s share price while just one analyst has increased it.

Investors will be judging Thursday whether Snap’s recent features launches and its efforts to woo advertisers, including a big Ferris wheel at Cannes, are pushing its nascent advertising business in the right direction.

Snap’s growing sales force continues to reach out to advertisers to pitch the value of buying commercials and other varieties of ads on Snapchat. The disappearing chat app had 166 million daily users as of March, and Snap maintains that its features are attracting more users despite the ideas being copied by competitors such as Instagram.

New data about usage growth, sales, advertiser interest and Snapchat’s audience compared to Instagram’s could spark fresh excitement about Snap.

Analysts who study the company say they’re seeing positive signs. Ron Josey of JMP Securities told clients this week that Snap sold facial-filter ads known as Sponsored Lenses on 60% of the days his firm tracked in the second quarter. The pace picked up over the April through June period and continued to increase in July, he said.

The company also began selling Spectacles, the video-filming glasses, in Europe during the quarter. Expanded availability could provide a small boost to Snap’s sales.

But Josey cautioned that “Snap’s ad product development has not progressed as fast as we had initially thought.” He lowered his one-year target on Snap shares to $25 from $28.

Analysts also noted that positive financial results may not be enough to quell the decline in Snap shares. Most employee-shareholders are free to begin selling shares Monday. Financial experts say most workers plan to hold onto their shares until prices rise, but there almost certainly will be some selling. The increased supply threatens to hold down prices.

Overall, analysts estimate Snap will see a modest increase in sales and similar usage growth when compared with the first quarter. Snap doesn't provide guidance about its expected performance.

Snap debuted on the New York Stock Exchange at $17 in March. Shares closed at $13.56 Wednesday, up 4%, or 54 cents.

Snap expectations vs. reality

Measurement Analysts' estimate Actual
MeasurementRevenue Analysts' estimate$186 million ActualTBA
MeasurementCost of sales Analysts' estimate$158.6 million ActualTBA
MeasurementLoss Analysts' estimate$367 million ActualTBA
MeasurementLoss per share Analysts' estimate$0.30 ActualTBA
MeasurementAverage revenue per user Analysts' estimate$1.07 ActualTBA
MeasurementDaily users Analysts' estimate175 million ActualTBA
MeasurementNet increase in daily users Analysts' estimate9 million ActualTBA

Source: FactSet

LOOK BACK | First quarter earnings report: Snap shares dive, but CEO Evan Spiegel isn't worrying about slowing user growth » / PGP

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