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Snap Q3 FY2022 Earnings Preview: User Numbers in Focus

Look to SNAP daily active users

Key Takeaways

  • Analysts estimate adjusted EPS of -$0.02 vs. $0.17 in Q3 FY 2021.
  • The number of average daily active users is expected to have risen at the slowest rate in more than two years.
  • Revenue growth also seen slowing.

Snap Inc. (SNAP), owner of the 12th-largest social media platform by users, will probably say it lost money for a third straight quarter as revenue growth fell to a five-year low after advertisers cut back on spending and competition stiffened.

Snap is likely to say it lost 2 cents per adjusted earnings per share (EPS), excluding certain items, in the third quarter, as revenue rose by less than 6%, the slowest pace in 19 quarters, according to an average estimate from Visible Alpha.

Social media companies face a potential plunge in advertising, long a significant revenue stream, amid heightened concern about a looming recession,geopolitical instability and persistent inflation. Brand advertising—popular among social media platforms—could be hit especially hard as companies across industries trim ad budgets. Snap has already suffered a pullback in ad spending partly due to intensifying competition from rival Tik Tok for young users.

Investors will look to the key social media metric of daily active users (DAUs), a figure indicating the size of the company’s total user base that's crucial to the company's ability to win advertiser dollars. Analysts predict DAUs will increase at the slowest pace in more than two years.

Snap shares, largely unchanged in the past quarter, have plunged over the last year. They slid 86% in the past year, compared with an 18.6% decline in the S&P 500 Index.

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

Snap Earnings History

Snap has posted at least seven straight years of annual losses through 2020. The company finally made an annual profit in 2021 by posting flat or positive EPS in each quarter. The last two most recent quarters of 2022 have swung to losses.

Snap's revenue growth has been more consistent, rising by at least 45% annually in the past three years. Yet that pace has slowed, dropping to 13.1% in the second quarter. For the next three months, analysts expect another slowdown to 5.8%.

Snap Key Stats
  Estimate for Q3 FY 2022 Q3 FY 2021 Q3 FY 2020
Adjusted Earnings Per Share ($) -0.02 0.17 0.01
Revenue ($B) 1.1 1.1 0.7
Average Daily Active Users (M) 359.2 306.0 249.0

Source: Visible Alpha

The Key Metric

Snap’s DAUs, defined as any registered Snapchat user who opens the app at least once during a 24-hour period, offer a snapshot of the size of Snap’s total user base. Snap generates the majority of its revenue through selling advertisements. The bigger the user base, the more attractive is Snap’s platform. Snap must also keep spending to provide more engaging features than competitors in order to lure more users.

Snap's DAU growth accelerated beginning in 2019 and has maintained consistent quarterly increases since then. In 2021, DAU grew at last 20% YOY in each quarter. Analysts predict that growth will slow in the third quarter of this year to 17.4%, the slowest pace since the second quarter of 2020.

Article Sources
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  1. Bloomberg. "Snap Falls Victim to TikTok's Rapid Growth."

  2. Wall Street Journal. "Three Things Marketers Should Know About Ad Spending Trends."

  3. Statista. "Most popular social networks worldwide as of January 2022, ranked by number of monthly active users."

  4. Visible Alpha. "Financial Data."

  5. Bloomberg. "Snap Falls Victim to TikTok's Rapid Growth."

  6. Snap Inc. "Form 10-K for the fiscal year ended December 31, 2021," Page 5.

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