We’re all familiar with Snapchat, so Im going to avoid the preamble and get straight to it. There are more threats in the market than Snap would care to admit between Apple changes (IDFA), Competition (Tik Tok) and User Growth.
Can a company get smacked during an ER twice in a row? The digital ads landscape is wonky right now - largely due to the IDFA changes (advertising changes) that Apple made to the iphone. Net/net, its hard for advertisers to link device IDs to users now, which makes nuanced ad offerings difficult.
Snapchat has always been extremely good at lower funnel (very targeted) ads due to how much data they collected on their younger skewing audience. However, they’re now facing challenges on two fronts - the digital ads landscape is shifting and the elephant in the room: Tik Tok.
TikTok has exploded on the scene and is devouring advertiser budgets. Most companies are now looking to the shiny new object in the room. Snap is directly threatened by Tik Tok as Snaps bread and butter has been younger skewing audiences, something Tik Tok has now asserted market dominance for.
Earnings are not all that matters in a digital app call though. Another big aspect is DAU - daily active users. Snapchat stock skyrocketed when their user numbers surprised the market - they also managed to secure larger ad budgets due to a boycott of FB (meta) that was happening at the time. Snapchat projected a DAU of between 316 and 318mm DAUs by Q4 - this would be an increase of 10MM DAUs across the quarter. You tell me - with the popularity of Tik Tok, has snapchat managed to continue acquiring new users?
Snapchat has also been downgraded twice recently (for what Ive mentioned above, mainly) by Wedbush and Cowen.
I would be remiss if I did not mention potential headwinds. Snapchat could have had a strong Holiday season and surprise the market with a revenue / EPS beat. Also, any mentions of Metaverse could impact the stock as it’s one of the more “hype” areas out there.
Looking forward to the discussion surrounding this stock. With an earnings in 10 days and a choppy market we could see interesting things.
How does SNAP make money? I’m assuming ads but I’m not familiar with the platform. What’s the reason the ticker has plummeted like this? I find it hard to believe this was all caused by Tik Tok.
They make money via ads. They’re an auction based platform where advertisers can go in and set a limit to how much money they want to spend and control other parameters.
All major tech companies (Google, Meta, Twitter, Reddit) make their money via ads. There’s a competitive ads landscape, and budgets are very fluid between where advertisers will put them. Since snap and tik tok have overlapping audiences, it wouldnt be suprising to see them there.
And all the drug dealers moved off Snapchat cuz of not spam accounts and feds making fake accounts and with them being able to see any snap they post to their stories.
I agree with the bearish thesis towards $SNAP. Even after the drop, its sitting at $51B Market cap which is still very overvalued when they post net losses yearly and 2021 pulled $2.5B in revenue. In comparison $FB posted $85B in revenue and trades at a $850B market cap. $FB at 10x revenue actually turning a profit vs $SNAP at 20x revenue and burning money doesn’t make sense to me so I believe it still has a decent way to fall especially if the bearish market holds up. As long as they don’t announce something related to augmented reality I think we could see a decent earnings dump and downtrend back to $5-$10 where it belongs.
Snap has an incredible user base that they have to tap into somehow. Look at their MAUs and DAUs it’s incredible and their growth rate for the last few years has been better than Facebook /meta. Bullish on snap long term
SNAP makes money via ads, however they aren’t very good at it. I’m not a big Social media person, but the way I interact with SNAP vs other platforms makes it very hard to monetize the platform effectively. For SNAP, I mainly use it to keep up with friends rather than explore the platform and follow influencers or just binge stuff. Tik Tok and Instagram is much better at this.
Long term, I am pretty bearish on SNAP, so I think the earnings play could bear some fruit, although I’m weary going into another earnings play. I work in advertising and while I did not have full view into the full spending across my company, I can say SNAP was near the bottom of Social Media advertising spend, despite being quite popular and well known in popular media.
Facebook is about 90% of all the spend because they are damn good at it. If anyone has ever tinkered with FB spend, it’s actually amazing. You can target ads down to a person’s location, interests, mutual friends, hobbies, etc. (bullish on FB). Contrast that with SNAP and you just don’t have the same things, maybe location data and that’s about it.
SNAP has also had a long time to work on their business and they still aren’t profitable. They are burning around $750M to $1B a year and they have about $2.5B left in the bank. They are slowly becoming profitable, but at the rate they are going, they will not be in a good financial standing by the time that comes around.
I think an unseen risk we could have (not related to earnings) is a buyout. At $50B, SNAP for its reach is very cheap imo. I could see a company like GOOG buying up SNAP to get a foothold into the Social media space again. Combining the vast resources GOOG has can help them compete with FB and Tik Tok.
I’ll give my 2 cents, as a younger person most of my friends used snap during middle and high school mostly for its texting and maps features. But for many of us, once we leave high school there’s less of a reason to use Snapchat, it’s almost pointless to add random people, especially because you’re not meeting as many people from school. And the “news stories” if you can call them that are some of the worst garbage I’ve ever seen on social media. Although I still use it for group chats, I’m seeing less stories being uploaded and am almost forgetting to use the right part of the app (where stories and news are). Also I’m seeing more people use Tiktok as it’s algorithm is easily addictive. If tiktok wants to end snap there best move imo is to expand there basic message system and add creative group chats.
Financial Guidance
The following forward-looking statements reflect our expectations for the fourth quarter of 2021 as of October 21, 2021, and are subject to substantial uncertainty. This guidance assumes constant foreign currency rates, and among other things, that no business acquisitions, investments, restructurings, or legal settlements are concluded in the quarter. Our results are based on assumptions that we believe to be reasonable as of this date, but may be materially affected by many factors, as discussed below in “Forward-Looking Statements.”
Q4 2021 Outlook
• Revenue is estimated to be between $1,165 million and $1,205 million.
• Adjusted EBITDA is estimated to be between $135 million and $175 million.
Will they meet revenue guidance? Just taking a small sample of 2020 here:
Q3 2020: 678.7M
Q4 2020: 911.3M (+232.6M or +34.3%)
Q3 2021: 1,067.5M
Q4 2021: 1,185M (+117.5M or +11.0%)
Based on the declining monthly average users and impact of TikTok, maybe not?
I remember Snap having lots of tie-ins with the NBA. During the bubble season ratings dropped off a cliff. Seems to be ratings have returned to 2019 levels but that was historically a lower year than previous years.
Down another 6% today. If you have puts, this is one of those “perhaps play the run up”. It’s fallen so much that it could reverse - I dont think it will HOOD itself.
As someone who blew up their portfolio by having to hold through earnings last time, I vividly remember that the main reason why the stock tanked was because of the privacy changes that Apple implemented that restricted previous data collection.
Even though it had negatively impacted the reported quarter, it was the guidance that was the final blow. They couldn’t answer a single question as to how their new “platform” (apparently they were switching ad software to regain some of the metrics they needed to appeal to advertisers) was going to benefit the company in future quarters.
Unless they figured out how to cure cancer, I don’t think any positive news is strong enough to shoot the stock up given that future outlook still looks grim.
FB shitting the bed and now SNAP down another 16% today. Had to pan out to find another support level around July 2020 to October 2020 on the weeklies near 22.24 (so weak support at best). Not the best at TA but maybe someone else can confirm?
Also, iirc I read somewhere that they’re Q4 web traffic was up but can’t seem to find that info now. I’d be really interested to see what more knowledgeable members have to say about SNAP but if it hits near or around support of $22.24 might consider this as an entry point and have a HOOD type of recovery.
I’m not sure what to make of it, but to my understanding it seems Snapchat is about to sell more shares to the market as they’ve been since 2018. Open to an alternate perspective.
Mmm… If you follow the link in there to the 2017 Equity Incentive Plan, it looks like at the beginning of every fiscal year they can add shares to their “share reserve” which then they can use for giving stock to employees for various reasons.
It doesn’t sound like it’s able to be used to sell to raise capital. However, it would still be a possible share dilution nonetheless if they start giving employees crazy amounts of the reserve shares.
Snapchat added a new feature where users get to change their usernames for free. Any further changes warrant a fee. I expect there to be significantly more profit for SNAP next quarter earnings. I also expect a beat as last earnings was the first profit ever in its history, so we can expect any further profit to be higher than previously as they add more sources of income.
