Project: Snap Earnings Analysis

Save Favorite

So Snap Earnings was must what we might have expected and with Meta on deck today things will get really interesting. If things are slowing like Azure suggested in the Cloud, you can bet things are very slow in the Advertising sector as well.

Snap had a rough 2022 as a slowing economy led numerous companies to slash their digital ad budgets. Snap may enter penny stock territory and go down in the area of 20% today, I wouldn’t be surprised.

However if TikTok gets banned, it’s a very sticky app for GenZ, one that they basically grew up on. Keep that in the back of your mind. I believe SNAP 2.49%↑ and not IG is the true beneficiary if TikTok gets banned in the U.S. Which is looking increasingly likely.

Snap’s quarterly revenue was just shy of $1.3 billion, essentially flat from the year prior. For the full year, Snap’s revenue grew 12%, a slower rate that the company attributed to “rapid deceleration in digital advertising growth.”

No Guidance is Worse that Bad Guidance
For a third straight quarter, the social media company is declining to provide guidance, though it says its “internal forecast” assumes a sales decline of between 2% and 10% from a year earlier.

Snap is a small player amid BigTech all rushing digital Advertising now including the likes of Amazon, Apple and Microsoft in 2023 itself. Many people don’t realize Microsoft’s $14 Billion investment in ChatGPT and OpenAI, is mostly just to juice Bing search Ads. Whether it does this remains to be seen, but that’s another story.

Here’s how the company did: (via CNBC):

Earnings per share: 14 cents, adjusted, versus 11 cents expected, according to a Refinitiv survey of analysts

Revenue: $1.30 billion versus $1.31 billion expected, according to Refinitiv

Global Daily Active Users (DAUs): 375 million versus 375.3 million expected, according to StreetAccount

Average revenue per user: $3.47 versus $3.49 expected, according to StreetAccount

Snap remains one of those companies that’s incredibly innovative that may never be a profitable company. In this environment that’s a very difficult situation to be in and one wonders for how much longer can they last? It’s down 15.74% in pre-marketing trading, but I think it could be down a lot more today.

History really is the best predictor of future behavior and for stocks it’s no different, it may be even more true:

It’s the third disappointing earnings report in a row for Snap investors. The day after the company’s Q3 earnings report in October, shares fell 28% on disappointing revenue.

Facebook’s best days are behind them, but what about Snap? I think they actually have room to go, especially if TikTok gets banned.

Snap said it has already seen a roughly 7% revenue decline so far in the first quarter compared to the year prior.
I do think Snap’s product engineering has been near genius level and that the app is incredibly sticky and understand GenZ really well.

But if you are a small social media app, competition in Ads is just epic, to the point where they may want to exit and get acquired sooner than later, so that they can really show their full potential with a benefactor. ByteDance acquiring them would be the best fit and Tencent already owns some stake in them.

With Amazon, Apple and Microsoft getting more into digital advertising to rival Google and Meta, things will just get MORE competitive for the likes of Snap.

Snap reported fourth quarter revenue of $1.30 billion versus estimates of $1.31 billion, it’s not as if they don’t generate revenue they just really neglected to grow internationally and are a bit of a U.S. niche app.

Yet users have been growing somewhat in recent times: As of the first quarter of 2022, Snapchat has 363 million daily active users worldwide. This is an increase from the third quarter in 2021, which had 306 million.

Read Snap Official Earnings

Read the Investor Letter, January 31st, 2023.

Read Q4 Earnings Slides.

Ad Slowdown is Real
For the full year, we generated $4.6 billion of revenue, up 12% year-over-year, reflecting the rapid deceleration in digital advertising growth.

ARPU is just $3.47, that’s actually pretty bad.

Net loss of $288 million in just QR 2022, basically about the same as 2021! Yikes.

They are essentially close to running out of funds, if I’m making proper sense of this.

User Growth is Significant
We used to value these sorts of stocks based on user-growth.

Snap ended the fourth quarter with 375 million daily users, for a 17% increase. In the first three months of the year the company estimates 382 million to 384 million people will use its platform daily.

This can give you hope if you are buying this on the dip, it’s has incredible untapped potential considering just how bad Facebook has become in terms of confidence, guidance and Metaverse chasing. I have to refuse to even call it ‘Meta’, it’s just so comically bad.

How do you reconcile a product that’s so good and a business that is bleeding money this bad with actual user growth? GenZ don’t have many places to turn if TikTok gets banned, and it’s an interesting gamble that someone would pick up Snap and enable it to truly reach its own potential. If only Apple did take pity on it. That would be the holy grail for Snap’s future.

I see Snap like a bit of a potential Cinderella story. Their job cuts have been painful to watch in recent months. Their market cap is supposedly $16.8 Billion. On what basis I am not sure. When your P/E is -17.

Snap is all over the map and I keep expecting it to drop below $7 in this environment. That being said, it’s a really strong brand in terms of app retention and apparently, user growth. This makes it a very interesting company to understand better.

Project Descriptor(s)

Most Recent Datasets in Project

There are no datasets for this project.

Most Recent Documents in Project

There are no documents for this project.

Most Recent Code in Project

There are no code for this project.