Snap (NYSE:SNAP) was one of the biggest and most exciting IPOs of the year, but its future is getting increasingly uncertain with every new earnings report it releases.
In this clip from Industry Focus: Tech, analyst Dylan Lewis and senior tech specialist Evan Niu go over some of the most important numbers from the Snapchat operator's most recent report -- revenue, bottom line, and more -- and explain what they mean for Snap, and why the market is backing away from the stock after this release.
A full transcript follows the video.
This video was recorded on Aug. 11, 2017.
Dylan Lewis: So, looking at the results, really all you need to do is take a glimpse at the stock chart, and that says everything about the market's opinion of what Snap dropped this quarter, huh?
Evan Niu: Yeah. People were not very pleased. User growth for any social media company is a big headline number, and they fell short.
Lewis: Yeah. Revenue for Q2 was $182 million, which is up 153% year over year. Given how early Snap is in its monetization process, the lumpiness there and the massive growth figures are hard to take seriously. But, the user numbers, like you said, struggled. The company now has 173 million daily actives, which is an increase of 21% year over year, just a 4% sequential boost. I know the market was looking for more. With what happened with the top line and what happened on the user side, both being disappointing, the stock traded down, I think it's down about 10% or so since reporting. Looking at what's going on on the top line, we see these gaudy growth rates, but something that I was reminded of in doing research for the show is, to date, in 2017, the company has brought in just over $330 million in revenue. Before the IPO, there was discussion that the platform would bring in just under $1 billion in revenue in 2017. You look at those numbers and that run rate, and usually the digital ad market is heavily weighted toward Q4, but they're setting themselves up to have to have a really great Q4 to hit that 2017 figure that they were touting when they were doing the road show.
Niu: Yeah. I think that's going to be pretty tough, because they're so new at this ad business. They don't really give quarterly guidance, either, which I think a lot of investors are disappointed by. With the company like this that's so young, some visibility goes a long way. And certainly the company has a forecast internally, so it's like, why don't you share that? Or at least, beyond investors, give Street analysts some idea of how to calibrate their models. If you don't give them anything, and the analysts have to come up with their own numbers with no input from the company, no guidance, then what you end up having is really wide fluctuation in estimates. And those estimates set investors' expectations, subsequently. So it's kind of disconcerting that they don't provide any type of guidance whatsoever.
Lewis: Yeah, they're kind of creating the situation for the wild price swings that happen after the quarterly reports, just because they're not giving the market whole lot to work with.
Lewis: Looking at their financials, we would be remiss if we did not talk about their bottom line, as well. The company is still not profitable, and I'm guessing that won't change anytime soon.
Niu: They lost about $443 million in the quarter. One thing I did think was kind of funny was in the press release, when they did the year-over-year comparison, they said that was not meaningful, whereas typically, when a company says not meaningful, it's usually because they're coming off a really small base, so a super large percentage change is misleading; or, if you're swinging from a negative to a positive and then you have a negative growth rate, which doesn't make sense, either. But in this case, they went from a $116 million loss a year ago, which is not an insignificant amount of money to lose. That's a pretty decent number. Then, that basically triples to $443 million. So, it's kind of silly that they're like, "Oh, that's not meaningful."
Lewis: Yeah. I would love to be able to treat $440 million as a drop in the bucket. It must be nice over at Snap HQ.
Dylan Lewis has no position in any stocks mentioned. Evan Niu, CFA has the following options: long January 2019 $20 puts on Snap Inc. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.