What To Watch As Snap Publishes Q4 Results
Snap Inc. (NYSE:SNAP) is expected to publish its Q4 2018 and full year results on February 5. While it’s likely that the company’s ARPU will trend higher on a year-over-year basis, driven by its push towards programmatic advertising, we will be closely watching the company’s daily active user metric, which has come under pressure in recent quarters.
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Daily Active User Base In Focus
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Snap has disappointed on the DAU front over the first nine months of 2018, with its user base declining from an average of about 191 million users in Q1’18 to 188 million in Q2 and 186 million in Q3. Moreover, the decline has been quite broad-based, coming from all the company’s geographic markets. Although the attrition has primarily been due to the poorly received Snapchat app redesign (launched in early 2018) and the related changes it subsequently made, competition from Facebook’s photo-sharing app Instagram is likely to be hurting Snap as well. While Instagram has made meaningful progress in international markets, with a monthly active user base of upwards of 1 billion, it has also been increasingly targeting Snap’s core demographic of U.S. teens. We will be looking for updates on how Snap fared in this regard over Q4.
Snap has been performing reasonably well in terms of ARPU, on account of the increasing use of its self-service tools and programmatic advertising. Over Q3, ARPU expanded by 37% year-over-year to $1.60. This has helped the company’s gross margins as well, with the metric rising to a record 36%, compared to 21% in Q3 2017 and 30% in Q2 2018. That said, this remains a fraction of rival Facebook’s gross margins (upwards of 70%) and the company will have to scale up significantly if it needs to meet its internal target of being profitable this year.
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