Facebook, Twitter Growth Debacles Loom Over Snap's Results

(Bloomberg) -- Snap Inc. investors are looking to a new management “wildcard” and Snapchat’s retooled redesign to provide a rare source of optimism and keep the floundering stock from mirroring selloffs suffered by its social media peers -- or from reliving its own earnings-fueled nosedives.

Less than two weeks ago, Facebook Inc. shares plummeted by more than 20 percent after its average daily visitors missed analyst projections. Twitter Inc. followed suit, as continued monetization was overshadowed by concerns about monthly active users. The selloffs look familiar to investors in Snap, which has lost more than 20 percent on the days after its earnings reports on two occasions in the year since going public. This quarter, shares may turn on whether Snap can surpass about 193 million daily active users -- the average of seven analyst estimates obtained by Bloomberg News.

"We believe the market has trained itself to approach each quarterly result with a heavy dose of caution as Snap remains a ‘show me stock,’” Monness Crespi Hardt analyst Brian White wrote in a note. In five quarterly reports since Snap’s March 2017 initial public offering, shares responded positively just once.

Short interest comprises more than a quarter of Snap’s public float, near a 52-week high, according to Markit Securities Finance. Snap has underperformed its social media peers this year despite their recent selloffs.

Facebook, Twitter Growth Debacles Loom Over Snap's Results

An underwhelming daily active user count could support the bear narrative that Facebook’s Instagram is increasingly winning audience share, Evercore ISI analyst Anthony DiClemente wrote in a note. But he also flagged a "wildcard" in new CFO Tim Stone, who Snap hired from Amazon in June. The market could respond positively if Stone outlines a long-term path to profitability. Usage trends could provide some bullish news after Snap undid much of its unpopular redesign, Wells Fargo analyst Peter Stabler wrote in a note.

Snap shares opened Tuesday’s trading session in the red, but have erased the loss to rise as much as 1.3 percent at 11:05 a.m. in New York. Facebook traded little changed while Twitter fell 0.3 percent.

Just the Numbers

  • 2Q daily active users est. 193 million (based on average of seven estimates obtained by Bloomberg News)
  • 2Q adjusted loss/share 18 cents (range loss of 13 cents to loss of 31 cents)
  • 2Q revenue $249.8 million (range $234 million to $265 million)

Data

  • SNAP has 6 buys, 18 holds, and 11 sell ratings. The average analyst price target is $12, according to data compiled by Bloomberg
  • Implied 1-day share move following earnings is 20%

Timing

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