Despite insisting on its website that “Snap Inc. is a camera company,” Snap (SNAP) is a social media company with more than 200 million daily active users (DAU). The growth of this metric will be a key focus when Snap reports results on October 22nd for Q3 2019. Analysts expect Snap to announce continuing losses during Q3, albeit smaller than a year ago.

Snap’s stock has had a rough time since its IPO. It bottomed out at the end of last year, down 80% from its March 2017 IPO price. In the last year it’s nearly doubled, but is still trading lower than the day it debuted on the public markets.

Graph Showing 1-Year Performance of SNAP and S&P 500
Source: TradingView.

One reason for that performance was declining revenue growth, which fell by half between the fourth quarter of 2017 and same period in 2018. One reason was a change in the way Snap sold ads, the main source of its revenue, which resulted in lower revenue per ad. This trend began to turn around when growth accelerated in the first half of 2019. However, consensus estimates have revenue growth slowing a bit this year.

Snap has never been profitable, but its losses per share have decreased over time. Losses hit a low point in the last quarter of 2018, before rising again in the first quarter of this year.  Snap is expected to report losses of $0.19 a share.

Snap Key Metrics
  Estimate for Q3 2019 Q3 2018 Q3 2017
Earnings Per Share -$0.19 -$0.25 -$0.36
Revenue (in millions) 435.5 297.7 207.9
Daily Active Users (in millions) N/A 186 178
Source: YCharts

Like all social media companies, the real driver of Snap’s stock is its number of daily active users. DAU measures the number of people who visit a website or utilize an app each day.  An important related metric is average revenue per user (ARPU) which is the average revenue generated for each user of the site or app. These numbers combine to form a picture of how large the company’s customer base is, and how well they are able to monetize that base.

Since its IPO, Snap’s DAU has steadily increased from quarter to quarter until the second period of 2018, when DAU dropped to 188 million from 191 million in the first quarter. That drop was announced in an earnings report released in August of 2018. By the time of Snap’s next earnings release, its stock had fallen by over 50%, hitting its all-time low in December. 

Snap's number of daily active users has started growing again this year, rising to a new high of 203 million in the second quarter of this year, the first new high in over a year. In addition, Snap’s average revenue per user grew steadily through the end of last year, when it peaked at $2.09 before falling to $1.68 on this year's first quarter. Since then, average revenue per user has rebounded somewhat in the second period. Investors may want to closely watch both metrics - DAU and ARPU - to assess Snap's progress.