Due to the uncertainty created by the COVID-19 pandemic, Snap (NYSE:SNAP) wouldn't provide an official outlook for revenue, user growth, or EBITDA for the third quarter. 

But CFO Derek Andersen gave investors a peak behind the curtain during the company's Q2 earnings call, offering some rough estimates management is using to guide its investments in the third quarter. While these numbers come with a lot more uncertainty than normal financial guidance, they can give investors some insight into the factors and considerations executives see impacting the business and their investment decisions.

Here's what Andersen is using to build his investment plan:

  • Daily active users (DAUs) between 242 million and 244 million (15% to 16% year-over-year growth).
  • Revenue growth of approximately 20%.
  • Cost of revenue and operating costs to grow in the low- to mid-20s percentage rate combined.

Here's what investors need to know about each of those factors.

The Snapchat logo on a yellow background.

Image source: Snap.

Slowing daily active users

Snap fell below its guidance for second-quarter DAU growth, adding 9 million users sequentially. Management had initially expected to add about 10 million after seeing early results in April, but the initial lift in users "dissipated faster than we anticipated as shelter in place conditions persisted." Still, the company saw incremental user growth each month in the second quarter.

But Andersen thinks that growth will continue to slow slightly in Q3. While DAUs grew 17% in the second quarter year over year, Andersen's currently expecting 15% to 16% growth this quarter.

Snap is lapping some important product launches from last year in Q3. Andersen points out it's lapping augmented reality (AR) products that allowed more advanced lenses, including the gender-swap lens. It's also lapping the launch of Snap Games, which the company said 100 million users have played.

Andersen also notes user growth in the third quarter is historically slower than Q2. Still, investors may not be happy with a continued slowdown in user growth after a slight underdelivery in the second quarter.

Revenue growth is a big question mark

Snap reported a strong start to the third quarter, but Andersen is taking a cautious outlook for the rest of the period. Through the first 19 days of July, revenue is up approximately 32%. But Andersen expects the full-quarter revenue growth to come in closer to 20%.

"Advertising demand in Q3 has historically been bolstered by factors that appear unlikely to materialize in the same way they have in prior years, including the back-to-school season, film release schedules, and the operations of various sports leagues," Andersen said.

The inability to predict how the COVID-19 pandemic will impact consumer behavior (and the advertising spend closely tied with it) creates a lot of uncertainty for Snap's revenue. While countries and states were beginning to open up, some have backtracked already to try to keep the virus under control.

Snap points out it's seeing increased interest from consumer-packaged goods, gaming, streaming services, and online retail companies for its ad products, and it's seeing good progress on its e-commerce-focused features like Dynamic Ads.

Expect a bigger loss

Andersen currently expects cost of revenue and operating expenses to grow slightly faster than revenue, accelerating from about 18% last quarter to the low- to mid-20s percentage range. Andersen notes, "We do not currently expect substantial variance in the cost growth estimate regardless of the revenue outcome in Q3."

If costs outpace revenue growth again, it'll result in a greater EBITDA loss than last year. Adjusted EBITDA loss increased to $96 million in the second quarter compared to $79 million in the same period last year. The company produced an EBITDA loss of $42 million in Q3 last year, though, so it should see a sequential improvement in the absolute loss.

Andersen said the company is no longer targeting profitability on an adjusted EBITDA basis for 2020. The company is more focused on investing for long-term growth in spite of revenue headwinds. Investors will want to see those investments paying off in sustained user growth (which is currently slowing again), as well as attracting more advertisers to its platform to build a base for long-term revenue growth.