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Snap earnings: What to expect

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Snap Inc. is about to give the first big indication of how the holiday period panned out for online advertisers, in a report that should hold clues for the bigger social-media names still to follow.

The Snapchat parent company rang some alarm bells three months back when its executives warned that marketers were lowering their budgets amid economic uncertainty. Snap’s
Tuesday afternoon report will show whether conditions improved at all since the time of that grim warning.

Snap shares are known to make big swings after earnings — falling at least 28% in each of the company’s past two reports — and other social-media stocks tend to come along for the ride, at least partially. Snap’s report will serve as a preview of sorts for those from Facebook-parent Meta Platforms Inc.
and Google-parent Alphabet Inc.

both of which are due out later in the week.

Here’s what to expect from Snap’s earnings.

What to expect:

Earnings: Analysts tracked by FactSet expect Snap to post an 11-cent loss per share for the fourth quarter, whereas the company earned a penny a share a year prior.

After adjustments, analysts surveyed by FactSet are modeling 11 cents a share in earnings, half of what the company posted a year prior. According to Estimize, which crowdsources projections from hedge funds, academics, and others, the average estimate calls for 12 cents a share in adjusted earnings.

Revenue: The FactSet consensus is for $1.31 billion in fourth-quarter revenue, compared with $1.30 billion in the year-before period. On Estimize, the average projection is for $1.30 billion in revenue.

User growth: Analysts surveyed by FactSet are modeling 12 million net additions of daily active users for Snap.

Stock movement: Snap shares have gained following six of the company’s past 10 earnings reports, though they’ve tanked after each of the past two. The stock has lost 64% over the past 12 months, but it’s up 24% so far in 2023.

Of the 40 analysts tracked by FactSet who cover Snap’s stock, nine have buy ratings, 28 have hold ratings, and three have sell ratings, with an average price target of $10.15. Snap shares closed Monday at $11.09.

What to watch for

Jefferies analyst James Heaney will be looking to see whether Snap was able to grow fourth-quarter revenue and whether it’s on track for “stability” in the first quarter. Those factors “will be key to supporting the stock,” in his view.

“The deterioration in SNAP’s business has been alarming with rev growth decelerating for 7 straight quarters to [an estimated] ~0% in Q4 (from 116% in Q2’21),” he wrote in a note to clients.

JPMorgan’s Doug Anmuth has concerns about the various challenges facing Snap.

“Following multiple challenging quarters across operational execution & expectations management, we remain cautious about SNAP’s positioning in an environment w/less data & signal, but more competition,” he wrote. The company continues to deal with the consequences of Apple Inc.’s
privacy-related changes, and it also faces stiff competition from TikTok.

Snap announced layoffs last year, and Anmuth added that he appreciates the company’s “early focus on cost saving initiatives to preserve profitability” but will “look for color on the level of re-hiring expected in 2023.”

Engagement trends will also be worth watching, as JMP Securities analyst Andrew Boone recently downgraded Snap’s stock amid concerns that users were spending more of their time on other platforms.

See more: Snap faces stiff pressure from YouTube and Reels, analyst warns in downgrade

“Short-form video platforms are taking share of time from Snapchat,” Boone wrote earlier in January, citing third-party data indicating that the rise of Reels, TikTok, and YouTube shorts is having an impact on Snapchat engagement.

Heaney of Jefferies also weighed in on the engagement question, suggesting that commentary on “time spent” might be more critical than daily-active-user numbers in light of the company’s disclosure last time around that time spent watching content in the U.S. fell by 5%.

“Given content consumption makes up the majority of the ad revenue today, we fear that declines in time spent in SNAP’s core markets could limit the advertising opportunity,” he wrote. “Additionally, SNAP is removing ~$50M of its content investment as part of its cost-cutting initiative, which could further pressure time spent.


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