Key Takeaways

  • Analysts estimate adjusted EPS of -$0.06 vs. -$0.08 in Q1 FY 2020.
  • Average daily active users are expected to post healthy gains YOY.
  • Revenue is expected to rise at rapid pace as Snap continues to attract new users.

Snap Inc. (SNAP) is coming off a strong quarter in which it attracted a swath of new users and posted two straight quarters of adjusted profits per share. The profits and increase in users have a lot to do with people spending more time online amid the COVID-19 pandemic. But as the boost from the pandemic subsides, Snap will have to find new ways to compete for additional users and their time.

Investors will be watching to see if Snap is able to record a third straight quarter of profits per share when the company reports earnings on April 22, 2021 for Q1 FY 2021. They may be disappointed. Analysts estimate that Snap will report an adjusted loss per share even as revenue rises at a robust pace.

Investors will also be focused on Snap's daily active users (DAUs), a key metric indicating the size of the company's total user base. Snap needs to grow its user base in order to attract more ad revenue from advertisers. Analysts expect a strong quarter of growth in average DAUs.

Shares of Snap have dramatically outperformed the broader market over the past year. However, after reaching an all-time high in late February, the stock has given back some of its gains. Snap's shares have provided a total return of 355.1% over the past year, well above the S&P 500's total return of 46.5%.

One Year Total Return for S&P 500 and Snap
Source: TradingView.

Snap Earnings History

The stock jumped following Snap's Q4 FY 2020 earnings report in early February, adding to upward momentum that had been gathering during the previous week. Snap posted a second straight quarter of positive adjusted earnings per share (EPS), which rose 208.3% compared to the year-ago quarter. It was also only the third quarter of per-share profitability in at least the past 12 quarters. Revenue climbed 62.5%, the fastest quarterly pace in at least three years.

Snap's shares also received a significant boost following its Q3 FY 2020 earnings report in the latter half of October 2020. The company reported its first quarter of per-share profitability since Q4 FY 2019, as revenue rose 52.1%, the fastest pace since the first quarter of FY 2018. Snap said that it was not providing guidance for the fourth quarter due to uncertainty related to the pandemic.

Analysts don't expect Snap to maintain its recent profitability streak in Q1 FY 2021. They expect an adjusted loss per share, though not as large as in the year-ago quarter. Revenue growth is expected to stay strong, rising 60.5%. For full-year FY 2021, analysts expect Snap to post its first positive annual adjusted EPS in at least four years. Annual revenue is expected to climb 52.2%, the fastest pace in at least four years.

Snap Key Stats
  Estimate for Q1 2021 (FY) Q1 2020 (FY) Q1 2019 (FY)
Adjusted Earnings Per Share ($) -0.06 -0.08 -0.10
Revenue ($M) 742.1 462.5 320.4
Average Daily Active Users (M) 275.6 229.0 190.0

Source: Visible Alpha

The Key Metric

As mentioned above, investors will also be focusing on Snap's DAUs, which are defined as any registered Snapchat user who opens the Snapchat app at least once during a 24-hour period. Average DAUs for any specific quarter are calculated by summing the number of DAUs on each day of that quarter and dividing the total by the number of days in the quarter. The metric provides a snapshot of the size of Snap's total user base. The company generates the majority of its revenue through selling ad space to advertisers. The bigger the user base the more attractive Snap's platform is to potential advertisers. But to create an attractive platform for users, Snap must continually invest in providing more engaging features than its competitors.

Snap's average DAUs have risen 42.5% over the past two years to 265.0 million for all of FY 2020. Much of that growth came last year amid the pandemic, as people sheltering at home spent more time on line. In Q4 FY 2020, total average DAUs rose at a year-over-year (YOY) pace of 21.6%, the fastest in at least 12 quarters. Analysts are expecting another quarter of robust growth, though slightly slower than in the final quarter of FY 2020.

But after Q1, analysts see a dramatic slowdown for Snap. They expect growth in average DAUs to decelerate from 21.6% for full-year 2020 to only 12.1% in FY 2021, which would mark the slowest annual pace since FY 2018.