Social media company Snap (NYSE:SNAP), the owner of the Snapchat platform, is scheduled to announce its results for the second quarter after the market closes on July 25. Snap has been under pressure due to the impact of macro challenges on the digital ad spending of enterprises. Analysts, who are generally cautious on Q2, expect the company’s revenue to continue to decline in the second quarter. That said, any positive updates related to the company’s My AI chatbot tool or the traction in its Snapchat+ offering could drive shares higher.
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Analysts’ Q2 Expectations
A slowdown in ad spending and rising competition from TikTok and other players have been weighing on Snap’s performance. In the first quarter, Snap’s revenue declined 7% year-over-year to about $989 million. The company’s GAAP loss per share reduced slightly to $0.21 from $0.22 in the prior-year quarter. Snap swung to an adjusted EPS of $0.01 from an adjusted loss per share of $0.02 in Q1 2022, thanks to its cost control initiatives.
Another worrying sign is that Snap’s daily active users (DAU) increased 15% to 383 million in Q1, but fell short of Wall Street’s expectation of 384 million.
For Q2, analysts expect a GAAP loss per share of $0.25, slightly lower than the loss per share of $0.26 in the prior-year quarter. Revenue is expected to decline more than 5% to $1.05 billion.
Last week, Goldman Sachs analyst Eric Sheridan raised his price target for Snap to $8 from $7 but maintained a Hold rating on the stock. The analyst slightly lowered his medium-term revenue growth estimates, citing execution risk around Snap’s direct response business rebuild.
Similarly, UBS analyst Lloyd Walmsley also increased his price target for Snap last week to $14 from $10 while maintaining a Hold rating on SNAP stock. However, Walmsley said that he does not project an “inflection” in Snap’s Q2 revenue and the Q3 outlook, as he thinks that the small and medium business (SMB) success on the company’s new platform is not significant enough to offset the continued disruption from large advertisers or brand weakness.
On a positive note, TipRanks’ Website Traffic Tool indicates that visits on snapchat.com jumped 80.5% in Q2 2023 compared to the prior-year quarter and were up nearly 27% compared to the first quarter. The solid jump in website traffic bodes well for the company’s top-line growth.
Technical Indicators Ahead of SNAP’s Q2 Earnings
Ahead of the Q2 earnings release, technical indicators reveal that Snap is a Buy. According to TipRanks’s easy-to-understand technical tool, SNAP’s 50-Day EMA (exponential moving average) is 11.39, while its price is $12.74, making it a Buy. Further, SNAP’s shorter duration EMA (20-day) also signals an uptrend.
Is SNAP a Buy or Sell?
Despite the technical indicators, Wall Street is sidelined on SNAP stock, with a Hold consensus rating based on six Buys, 20 Holds, and one Sell. The average price target of $10.84 implies a possible downside of 14.5%, following an over 43.3% year-to-date rise in the stock.
Insights from Options Trading Activity
TipRanks now presents options activity to help investors plan their trades ahead of earnings releases. Options traders are pricing in a 23.03% move on Snap earnings. The stock has averaged a (4.66)% move in the last eight quarters. In the most recent quarter, Q1 2023, SNAP stock moved -17% one day after the earnings release.
The anticipated move is determined by computing the at-the-money straddle of the options closest to the expiration after the earnings announcement.
