Snap Earnings Preview: ARPU In Focus As Snap Doubles Down On Ad Tech

by Trefis Team
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Snap Inc. (NYSE:SNAP) is expected to publish its Q2 2017 results on August 10, reporting its second set of quarterly results as a publicly listed company. The company’s stock has seen a big selloff over the last few weeks, falling to levels of under $14, largely due to the expiry of its IPO “lockup” period that allows early investors and employees to sell stock, as well as S&P Global’s decision to exclude stocks such as Snap that have dual-share class share structures from its indexes. Moreover, there have been broader concerns about Snap’s ability to compete with social media behemoth Facebook, which has been copying Snapchat’s best features. Below is a brief overview of what we will be watching when Snap publishes earnings.

Trefis has a $17 price estimate for Snap, which is now ahead of the current market price.

See Our Full Model And Analysis For Snap Here

We Have Low Expectations For User Growth

The metric that investors will be most closely watching in Snap’s earnings release will be its daily active user growth . During Q1 2017, Snap’s global DAU additions came in at about 8 million, well below the 15 million DAU adds it posted in the prior year period. We believe that there is a possibility that the slowing growth could become a more secular trend, given Facebook’s strategy of quickly rolling out Snap’s best features (ranging from Stories to custom stickers) to its 2 billion+ users on various platforms, giving users of its products less reason to sign up for Snapchat (related: Can Snap Move Beyond Being Facebook’s Innovation Lab?). Our current valuation model estimates that Snap will add just over 26 million DAUs this year (roughly 6 million DAU additions for each quarter between Q2 and Q4), but we may have to revisit our valuation if the company falls short of these estimates.

We will also be closely watching Snap’s average revenue per user (ARPU) for the quarter. During Q1, the company grew quarterly revenues per user by 180% year-over-year to about $0.90, although there was a sequential decline on account of seasonality. ARPU figures for Q2 are likely to improve, driven by higher engagement levels on the Snapchat platform. Last quarter, Snap noted that users were spending an average of 30 minutes per day on the app, versus the 25 to 30 minutes it highlighted prior to its IPO. Moreover, Snap could also benefit from the introduction of its self-serve advertising tool as well as its recent push towards programmatic advertising, which allows it to address the needs of a larger base of digital marketers.

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