Snap's (NYSE:SNAP) fourth-quarter earnings are coming out today, the day after the Dow took a historic plunge, and shareholders have to hope that it's not too much foreshadowing. The report, due out after the bell, will round out the Snapchat operator's rather bleak first year as a public company.
Snap's shares dropped 14% the day after it gave a disappointing third-quarter report. The poor report included slowing user growth and a revenue miss, and showed no clear path to profitability. If the company doesn't give investors better growth signs today, we may see the stock take another dramatic dip.
When Snap reported Q3 results in November, it missed analyst revenue estimates widely, and didn't provide guidance for the fourth quarter. Wall Street, however, is looking for the company to report revenue of $253 million, up 52% from Q4 2016. However, even if it hits that number, it would still represent the sixth straight quarter of year-over-year revenue growth deceleration.
In addition, quarterly revenue of $253 million would bring its full-year revenue to $793 million. While that's a significant jump from last year's $404 million, it's still a far cry from the $1 billion in annual revenue that some analysts were predicting when the company was hyping its IPO last March.
User growth is a figure all eyes will be scanning for as Snapchat looks to demonstrate that it can compete with Facebook-owned Instagram; the two share similar Story features.
For Q3, Snap reported 178 million daily active users (DAUs) vs. the 181.8 million expected by analysts. This represented 4.5 million new DAUs, or growth of about 17% year-over-year, but just 3% sequential growth.
Analysts are expecting an increase of between 6 million and 7 million users for the quarter being reported today. That would be a 16% jump year-over-year on the low end to 184 million users. That would still be significantly fewer DAUs than the 300 million that Instagram Stories had in November.
The silver lining is that Snapchat can still boast that it's a haven for coveted youth demographics. Last year, the app surpassed both Instagram and Facebook in terms of total users in the 12-to-17 and 18-to-24 age groups, according to data from eMarketer.
But while Snapchat may still be the go-to place for teens and college students to share photos and short videos with friends, the problem for Snap is that it's hard to monetize that content. In the last quarter, Snap lost $443 million, up from the $124 million it lost in Q3 2016.
Update on the redesign
During last quarter's earnings call, CEO Evan Spiegel said the company was redesigning Snapchat in response to complaints that its interface was too complicated. This gave investors hope, as they thought that a big change in the app might give it the boost of energy required to regain the user growth rates it once enjoyed.
However, three months later, that redesign has still not rolled out widely, and investors will be looking for answers as to what's taking so long.
According to allegedly leaked data uncovered by The Daily Beast in January, the biggest concern around the redesign is that it will make the Discover section even less popular. The Discover feature is important because it's where big media players display their content. In the new version, users' Discover Stories and friends' stories will reportedly be separated, which means there will be fewer chances for curious users to click on publishers' content, which could further hurt Snap's advertising efforts.
Spiegel warned in November that the redesign could be disruptive to Snap's business in the short term, so it will be interesting to see if the company provides any color as to how the rollout is going so far. "We're willing to take that risk for what we believe are substantial long-term benefits to our business," he said at the time.
More recently, Snap released a new in-app merchandise store as it continues its experiments to see what users are willing to pay for. Previously, Snap made a bet on hardware -- its Spectacles -- but ended up losing $40 million on the video-recording sunglasses last quarter when they proved to be far less popular than expected.
It's now been nearly a year since Snap went public, and it has been plagued by the same problems each quarter: slowing user growth, fierce competition from Instagram, and no clear path to profitability. Today is its chance to show that it's at least making progress on fixing those issues.
Natalie Walters has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Facebook. The Motley Fool has the following options: short March 2018 $200 calls on Facebook and long March 2018 $170 puts on Facebook. The Motley Fool has a disclosure policy.