SNAP, Inc., Muted Q3 Performance Detailed, and Plans for a Turnaround, Analysts Revisions

Snap Inc. (NYSE: SNAP) engages in the operation of its camera platform that helps people to communicate through short videos and images. The company is also involved in the provision of advertising by helping its partners generate a return on their investment by creating engaging advertising products. Its products include Snapchat, Publisher Tools, and Spectacles.

The company was founded by Frank Reginald Brown IV, Evan Thomas Spiegel, and Robert C. Murphy in July 2011 and is headquartered in Venice, CA. The company was originally named Snapchat Inc. upon its inception, but it was rebranded on September 24, 2016, as Snap Inc. in order to include the Spectacles product under a single company.

SNAP monetizes its business primarily through advertising. Its advertising products include Snap Ads and Sponsored Creative Tools like Sponsored Lenses and Sponsored Geofilters, and measurement services.

On November 7th, the company announced results for the quarter ended September 30, 2017. SNAP delivered another quarter of muted performance. While revenues grew on QOQ and YOY basis, expenses are increasing disproportionately. Therefore, the company cannot find positive income.

Snap’s lower than expected revenues were contributed to by relatively slower user growth as well as deceleration in the growth average revenue per user (ARPU), indicating a slowdown in user engagement.

On the flip side, the company still has comfortable liquidity and financial flexibility; The Company doesn’t have significant debt. The balance sheet continues to remain firm with over $3 billion in stockholders’ equity. Furthermore, SNAP has managed to avoid liabilities through the progressive sale of more stock, and investments.

Moreover, on the business front, the company has been focused on making progress against performance, quality, and automation this year, and is beginning to see the results of these efforts. Application performance has increased and has made meaningful progress against key customer-facing metrics.

Also, to attract more Android users, The Company is building a new version of its Android application from the ground up that it will launch in select markets before rolling it out widely.

Considering factors mentioned above, 2018 could be a productive and exciting year for SNAP, with many changes coming to its products and platform. The management is expected to be hard at work delivering on its priorities; user growth, content, and augmented reality.

The analysts covering the stock are suggesting a buy on the dip approach for SNAP but with caution, as a few more quarters of earnings misses could impinge the company’s stock performance significantly.


Other recent Operational highlights:

  • Daily active users (DAU) (1) – DAUs grew from 153 million in Q3 2016 to 178 million in Q3 2017, an increase of 25.2 million or 17% year-over-year. DAUs increased 4.5 million or 3% quarter-over-quarter, from 173 million in Q2 2017.
  • Average revenue per user (ARPU) (2) – ARPU was $1.17 in Q3 2017, an increase of 39% over Q3 2016 when ARPU was $0.84. ARPU increased 12% over Q2 2017 when ARPU was $1.05.
  • Hosting costs per DAU – Hosting costs per DAU were $0.68 in Q3 2017, as compared to $0.64 in Q3 2016 and $0.61 in Q2 2017.
  • Capital expenditures – Capital expenditures were $25.9 million in Q3 2017, as compared to $17.2 million in Q3 2016 and $19.4 million in Q2 2017.
  • Excess inventory and related charges – In Q3 2017, SNAP recorded $39.9 million of costs related to Spectacles inventory, primarily related to excess inventory reserves and inventory purchase commitment cancellation charges.


2nd Quarter 2017 Financial Results:

Revenue and Profitability:

  • Revenue was $207.9 million, an increase of 62% year-over-year. While SNAP’s advertising business is still in its early stages, in the three months ended September 30, 2017, the company recorded revenue of $207.9 million as compared to revenue of $128.2 million for the same period in 2016, representing a 62% year-over-year increase.
  • In the nine months ended September 30, 2017, it recorded revenue of $539.3 million as compared to revenue of $238.8 million for the same period in 2016, a 126% year-over-year increase.
  • Net loss for the three and nine months ended September 30, 2017, was $443.2 million and $3.1 billion, respectively, as compared to $124.2 million and $344.7 million, respectively, for the same periods in 2016.


  • Cash, cash equivalents, and marketable securities were $2.3 billion as of September 30, 2017, primarily consisting of cash on deposit with banks and highly liquid investments in U.S. government and agency securities.


Key risk factors and potential stock drivers:

The company generates substantially all of its revenue from advertising. To increase advertising revenue, it needs more users. Counter-intuitively, the company is struggling to produce that user growth.

The failure to attract new advertisers, the loss of advertisers, or a reduction in how much they spend could harm business and in turn stock performance.

SNAP’s business is highly competitive. It faces significant competition that it anticipates will continue to intensify. If the company is not able to maintain or improve its market share, its business could suffer.


Analysts current opinions.

Nov-09-17 Downgrade Morgan Stanley Equal-Weight → Underweight
Nov-08-17 Reiterated Oppenheimer Outperform $16 → $14
Nov-08-17 Reiterated Canaccord Genuity Hold $15 → $12
Nov-08-17 Reiterated Barclays Equal Weight $13 → $11
Nov-08-17 Reiterated Aegis Capital Hold $15 → $13
Nov-08-17 Downgrade UBS Neutral → Sell $12 → $7
Nov-08-17 Downgrade Stifel Buy → Hold $18 → $13
Nov-08-17 Downgrade RBC Capital Mkts Outperform → Sector Perform $20 → $15
Nov-08-17 Downgrade JP Morgan Neutral → Underweight



Stock Chart:


  • On Monday, November 13th, 2017, SNAP is trading at $12.48 (-2.23%) on volume of 9.6 million shares exchanging hands. Market capitalization is $15.37 billion. The current RSI is 35.57
  • In the past 52 weeks, shares of SNAP have traded as low as $11.28 and as high as $29.44
  • At $12.48, shares of SNAP are trading below its 50-day moving average (MA) at $14.76.
  • The present support and resistance levels for the stock are at $12.43 & $12.96 respectively.


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