Snap Earnings Preview

With advertising partners facing increasing headwinds, investors will be looking to see if Snap can repeat last quarter's record results.

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Getting back to work

Like many stay-at-home stocks, Snap shares have been substantially underperforming this year. Its fair to say the stock price is being partially driven by factors outside of how the company is doing. As the Fed moves to raise borrowing costs, investor interest in companies that are still waiting to generate a profit is likely to remain under pressure. So, even if Snap's results are good, the stock price could still face challenges.

Technically Snap is no longer an unprofitable company since last quarter, the social media company managed a record-breaking EPS of $0.01, and above analyst expectations. While revenue also increased, it appears that this result was driven more by cost-cutting measures, with adj EBITDA advancing slower than sales as well as generating positive free cash flow.

Repeating the miracle

In the post-earnings presser, Snap CEO Evan Spiegel acknowledged that there were additional challenges for Snapchat this quarter. These include the change in Apple's ad policy and advertising partners facing headwinds, meaning potentially less growth. The consensus among analysts is that Snap's sales will actually fall to $1.1B from $1.5B prior. EPS is forecast at -$0.17, a return to levels seen in the prior year's first quarter.

As usual, the focus will likely be the daily active users (DAUs), which grew 20% last quarter to 330.6M. Something that could provide a positive for content creators is rival Meta's Instagram reportedly cut revenue to creators by 70%. The Snapchat creator rewards program might help support further migration to the platform.

The other thing to mention is that the CEO was quite enthusiastic about increasing investment this year. This means potentially lower earnings, even if the company manages to overcome headwinds and grow sales.


SNAP stock: pause or bottom

SNAP has ranged since the low of Jan 24 ‘22 but we cannot ignore it has been in a bear market since November ’21. In fact, it is down 65% from its all-time high of $83.60 registered in September ’21.

The sideways market can be clearly defined by support at $28 and resistance at $40; it could go either way post-earnings. Should the low break, $21 becomes a major level. On the flip side, the 100-day MA is major resistance. A powerful reversal outside the range could lead Snap towards the 200-day average near $53 – but this would be counter to broader trends in the sector.

Source: Spreadex trading platform

Key takeaways

Snap appears to underperform due to interest rates and borrowing costs rising and its thereby likely to face challenges even if its results are good. The consensus is that sales are down- and ongoing challenges faced by Snap include headwinds with advertising partners and Apple's ad policy. Analysts expect a low forecast for SNAP this quarter unless Meta’s creators migrate to Snap due to its reward program.