Snap Inc. (SNAP) shares are trading higher by 2.9% to $10.75 during Monday’s session, a sign that investors are optimistic ahead of the company’s upcoming third-quarter earnings announcement. The results are expected to be released after the market closes on Tuesday, and Wall Street is closely watching to see if Snap can maintain its growth trajectory following a mixed second quarter.
Analysts are expecting Snap to report earnings of 5 cents per share on revenue of $1.36 billion. This would represent moderate growth compared to the company’s second-quarter results, which saw revenue reach $1.24 billion, a 16% year-over-year increase but slightly below the consensus estimate of $1.25 billion. Despite falling short on revenue, Snap’s earnings of 2 cents per share aligned with analyst projections.
Strong User Engagement, But Challenges Remain
Snap’s user metrics in the second quarter were encouraging, with daily active users (DAUs) growing 9% year-over-year to reach 432 million, and monthly active users (MAUs) climbing to 850 million. This increase in user engagement, particularly in Snapchat+, which has reached over 11 million subscribers, has been a bright spot for the company.
However, Snap continues to face financial challenges. The company reported a negative operating cash flow of $21 million and a free cash flow of negative $73 million in the second quarter, highlighting pressure on profitability amid fierce competition in the social media space. Despite these challenges, Snap closed the second quarter with a cash position of $1.06 billion, offering some financial cushion as it navigates the current market landscape.
Q3 Outlook and Monetization Strategies
In its second-quarter report, Snap provided a third-quarter outlook suggesting revenue in the range of $1.335 billion to $1.375 billion, implying year-over-year growth of 12% to 16%. This growth rate is slightly lower than the company’s second-quarter performance. Snap also guided for an adjusted EBITDA between $70 million and $100 million, signaling some optimism about operational improvements.
The company expects to reach around 441 million DAUs for the third quarter, further demonstrating its user growth potential. However, investors will be closely scrutinizing Snap’s monetization efforts and cost management strategies. CEO Evan Spiegel highlighted Snap’s advertising platform expansion in the second quarter, with active advertisers more than doubling year-over-year. This positions Snap to benefit from the ongoing rebound in digital advertising. The Snap Partner Summit, held in September, provided a platform to showcase the company’s upcoming innovations, which could offer insights into new product features or monetization opportunities for the third quarter and beyond.
Is SNAP a Good Stock to Buy?
Deciding whether or not to buy SNAP stock requires a careful evaluation of key fundamentals. One crucial factor is revenue growth. Snap has reported average annual revenue growth of 42.97% over the past 5 years. This strong growth track record makes SNAP an attractive prospect for investors seeking long-term potential.
Valuation is also an important consideration. Snap currently has a forward P/E ratio of 35.97, meaning investors are paying $35.97 for each dollar of expected earnings in the future. The average forward P/E ratio of Snap’s peers is 60.49. While SNAP’s valuation is relatively high, it’s still within the range of its competitors.
Other important metrics to consider include a company’s profitability, balance sheet, performance relative to a benchmark index, and valuation compared to peers. Investors can access in-depth analysis tools and important financial data through platforms like Benzinga Pro.
According to data from Benzinga Pro, SNAP has a 52-week high of $17.90 and a 52-week low of $8.29.
In conclusion, Snap’s upcoming Q3 earnings report will be a crucial indicator of the company’s ability to balance user growth with operational efficiency in a challenging market environment. The results will shed light on Snap’s progress in monetizing its platform and navigating the competitive landscape of social media. Investors will be looking for signs that Snap can continue its growth trajectory and deliver on its promise of long-term value creation.
