Snap Stock To Beat The Consensus In Q3?

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Snap (NYSE: SNAP) is scheduled to report its fiscal Q3 2022 results on Thursday, October 20, 2022. We expect the stock to beat the consensus estimates. While the company reported a 13% increase in total revenue in the last quarter, it still missed street expectations. The main reason behind it was high growth numbers in 2021 and advertising budget cuts in 2022 due to the tough macroeconomic scenario. The firm posted mixed growth in its key metrics in Q2. The average revenue per user (ARPU) decreased on a year-on-year basis. However, the daily active users (DAU) increased by 18% y-o-y. We expect the revenues to improve in the third quarter driven by user growth.

Our forecast indicates that Snap’s valuation is $14 per share, which is 35% above the current market price of around $11. Our interactive dashboard analysis on Snap’s Earnings Preview has more details. 

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(1) Revenues expected to edge past the consensus estimates

Snap’s revenues increased 24% y-o-y to $2.18 billion in the first half of 2022. 

  • The primary source of Snap income is advertising, which includes Snap Ads and Augmented Reality Ads. Its growth rate suffered over the first two quarters of 2022 and we expect the same trend to continue in the third quarter.
  • It launched several new offerings like Snapchat+ premium subscription service, Snapchat for web, etc. This will likely help in growing the user base and opening new monetization opportunities. We expect DAU to see positive growth in Q3.
  • Overall, we estimate Snap’s revenues to touch $4.6 billion for FY2022.

Trefis estimates Snap’s fiscal Q3 2022 net revenues to be around $1.16 billion, 3% above the $1.13 billion consensus estimate. 

(2) EPS is likely to beat the consensus estimates

Snap Q3 2022 adjusted earnings per share (EPS) is expected to be $0.02 per Trefis analysis, comfortably beating the consensus estimate of -$0.01. The company’s net loss increased from -$438.6 million to -$781.7 million in the first half of 2022. It was mainly due to higher costs & expenses as a % of revenues and an increase in other expenses. We expect the net income margin to see some improvement in the third quarter. Overall, Snap is likely to report an annual GAAP EPS of -$0.44 for FY 2022. 

(3) Stock price estimate is 35% above the current market price

We arrive at Snap’s valuation, using a revenue per share (RPS) estimate of around $2.81 and a P/S multiple of just above 5x in fiscal 2022. This translates into a price of $14, which is 35% more than the current market price of close to $11. 

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year 

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 Returns Oct 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 SNAP Return 8% -77% -28%
 S&P 500 Return 3% -23% 64%
 Trefis Multi-Strategy Portfolio 2% -25% 196%

[1] Month-to-date and year-to-date as of 10/18/2022
[2] Cumulative total returns since the end of 2016

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