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  • Earnings
  • disruptive innovation

Snap’s share price is outpacing Facebook's ahead of Q3 earnings

Snap [SNAP], the social media company that owns SnapChat, is expected to exceed its forecast for revenue and profit with an earnings per share rise of five-fold and revenue growth of 60% year on year in the quarter to September 30. The company is expected to report earnings on October 21.

“We are pleased by the progress our team is making with the development of our augmented reality platform,” said Evan Spiegel, chief executive officer when reporting July quarter results.

Snap is developing augmented reality solutions as Screenshop, which allows users to scan a friend’s clothing outfit and find matching fashions online, and true size technology to accurately size eyewear and sunglasses.

Analysts said, views on the digital advertising market and how it is performing as the pandemic eases will govern the direction for Snap share price. Since it is used more sporadically users on the platform filter to put up more interesting content to posts than on competing Facebook [FB].

However, in case of an economic downturn and lower advertising spending Snap could be hit harder. Moreover, the reopening of outdoor entertainment risks lowering digital footfall on Snap’s platforms.

Analysts are also interested in the progress of other services such as Bitmoji.

 

 

Snap’s share price movement

Snap enjoyed a stellar 2020 as the COVID pandemic and its subsequent lockdowns kept most people at home and socialising via their phones.

The tech company's social media platform Snapchat helped keep friends in touch with each other and provided entertainment in a time when cinemas and theme parks were closed to the public.

The increased use of digital platforms, and the need for generations to communicate during the crisis, also introduced older people to the Snapchat service.

The company has also been boosted by bringing out new innovations such as 3D body meshes and new business profile services.

In addition, a partnership with Salesforce, which allows brands to leverage their first-party data to reach Snapchatters with relevant ads, has helped it to boost advertising revenues.

Its checkout functionality, first introduced in 2019, has also allowed it to take advantage of the e-commerce boom, by allowing users to buy products from companies without having to leave the Snapchat app.

Over the last 12 months, the Snap share price has soared by 170.7%, outpacing peers Facebook [FB] which has climbed 26.3% and Twitter [TWTR] which has risen by 40.8%.

Investors will be looking to see if the Snap share price can continue to keep ahead of its peers when it releases its third-quarter earnings.

 

Snap’s previous earnings report performance

In its second quarter, Snap recorded earnings per share of $0.10, better than the $0.01 loss forecasted by analysts and up on the $0.09 loss in the same period last year.

Its revenues came in at $982m, up from $454.1m in Q2 2020 and ahead of expectations of $846m.

$982million

Snap's Q2 revenue

  

Global daily active users were 293m, up 23% year on year and ahead of the 290.3m forecast. Its average revenues per user came in at $3.35 compared with forecasts of $2.92.

Its share price rose after the results from $62.97 at the close on 22 July to $77.97 at the close on the 23rd.

“We grew both revenue and daily active users at the highest rates, we have achieved in the past four years,” said Evan Spiegel.

 

Wall Street expectations for upcoming earnings

According to analysts at Zacks, Snap is expected to post Q3 earnings of $0.06 per share, up 500% from the same period last year. Revenues are expected to be $1.09bn, up 60% from this time last year.

Snap expects its revenues to come in between $1.07bn and $1.085bn with adjusted operating profit of between $100m and $120m, up from $56m in Q3 2020.

“Snap’s growth has really helped it stand apart from its peers, and it is continuing to see strong usage and engagement” - Mandeep Singh

 

Analysts are excited, with Seeking Alpha putting a buy rating on the stock and a price target of $102. “We see a long runway for monetization growth for Snap driven by its recent successful investments in improving return on investment for advertisers,” it said in an article titled, “Is Snap the next trillion-dollar company?”

It is increasingly being compared favourably with social media giant Facebook. “Snap’s growth has really helped it stand apart from its peers, and it is continuing to see strong usage and engagement,” said Mandeep Singh, an analyst at Bloomberg Intelligence. “At the same time, Facebook is dealing with trust issues. Because Snap is more about messaging and entertainment than sharing news, it is less tied to concerns over misinformation or corporate governance.”

Disclaimer Past performance is not a reliable indicator of future results.

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