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Why Are Snap’s Q1 Earnings Impressive?


Apr. 22 2020, Published 8:54 a.m. ET

On Tuesday, Snap (NYSE:SNAP) released its first-quarter earnings after the market closed. The quarter ended on March 31, 2020. Notably, the stock rose by as much as 20% in after-hours trading on the same day. The stock rose because the company’s quarterly revenue and user growth beat Wall Street analysts’ estimates.

In the first quarter, Snap generated revenue of $462.5 million—an increase of 44.3% from $320.4 million in the first quarter of 2019. The company beat Wall Street analysts’ consensus estimate of $428.8 million. Snapchat’s number of global DAUs (daily active users) grew by 11 million in the first quarter.

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Snap’s Q1 performance

In the first quarter, Snapchat surprised everyone by adding 11 million global DAUs, which took its tally to 229 million—up 20% YoY (year-over-year). The company delivered the kind of user growth that investors had been longing for over the past few years. Amid COVID-19, more people look for entertainment during the lockdowns. Analysts only expected close to 7 million global DAU additions during the quarter. Snap reported an average revenue per user of $2.02 for the first quarter. In the first quarter of 2019, Snap reported global DAUs of 190 million and an average revenue per user of $1.68. The company has managed to increase its user base despite competition from Facebook (NASDAQ:FB) and Pinterest (NYSE:PINS).

On an adjusted basis, Snap reported a net loss per share of $0.08 in the first quarter—higher than analysts’ consensus estimate of -$0.07. However, the company reported a net loss per share of $0.10 in the first quarter of 2019.

According to a Reuters report, “Snapchat, known for its disappearing messages, said it saw a jump in usage in the last week of March compared with the end of January, as people increasingly used the app to communicate with friends and family. Usage also increased for Snapchat’s original content and in-app games.” The report also said, “The company said higher revenue in the first two months of the quarter offset lower growth in March, when advertisers began to tighten marketing budgets as non-essential stores closed amid the pandemic.”

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Growth projection for 2020

Snap didn’t provide any financial guidance for the second quarter due to uncertainties related to the coronavirus outbreak. For 2020, analysts expect Snap’s revenues to grow 18.9% YoY—lower compared to 45.3% YoY growth in 2019. The revenue growth will likely rise to 36.9% in 2021. Meanwhile, analysts expect a net loss per share of $0.13 in 2020—better than a net loss per share of $0.16 in 2019. Analysts also expect the adjusted EPS to rise significantly to $0.15 in 2021.

Analysts’ recommendations for Snap

Snap is tracked by 42 Wall Street analysts. Among the analysts, 25 recommend a “buy,” 16 recommend a “hold,” and one recommends a “sell.” Analysts’ mean target price on the stock is $16.85, which implies a 35.5% gain from the current level of $12.44. The consensus target price for the stock has fallen from $19.03 in March—a fall of 11.5%.

Many analysts revised their target price for Snap stock after the first-quarter earnings results.

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  • Jefferies increased its target price from $15 to $20.
  • RBC increased its target price from $18 to $21.
  • J.P. Morgan increased its target price from $16 to $18.
  • Cowen and Company increased its target price from $16 to $19.
  • Credit Suisse decreased its target price from $20 to $18.
  • MKM Partners increased its target price from $17 to $18.

Facebook and Pinterest’s target prices suggest potential returns of 27.3% and 30.8%, respectively.

Stock performance

Snap stock closed 3.7% lower on Tuesday and stood at $12.44. At the closing price, the company’s market cap is about $17.7 billion. The stock is trading 37.0% lower than its 52-week high of $19.76 and 57.7% higher than its 52-week low of $7.89. Overall, Snap has gained 6.6% in the last 12 months.

Based on the closing price on Tuesday, Snap stock was trading 0.7% above its 20-day moving average of $12.35. The stock is also trading 5.8% below its 50-day moving average of $13.21 and 16.6% below its 100-day moving average of $14.92. Snap’s 14-day RSI score is 48. The score suggests that the stock isn’t overbought or oversold.

Facebook and Pinterest stocks delivered negative returns of 4.2% and 3.2% on Tuesday. Facebook will release its first-quarter results on April 29. Wall Street analysts expect Facebook’s reported revenue in the first quarter to rise by 16.2% to $17.5 billion. They expect a fall of 7.4% YoY in the adjusted EPS to $1.75. For the first quarter, Pinterest will likely report revenues of $268.3 million with an EPS of -$0.08.

Read Should Investors Buy Snap Stock amid COVID-19? to learn more.


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