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The key number investors should watch in Snap's earnings report

JP Mangalindan
Chief Tech Correspondent

Snap (SNAP) is expected to report fiscal first-quarter 2019 earnings on Tuesday afternoon, and Wall Street will be paying close attention to whether the app gains or loses users.

Wall Street analysts are generally expecting a loss of $.22 per share on revenues of $305 million for Snap’s first-quarter 2019, versus a loss of $.17 per share on $231 million a year ago. Snap’s interim CFO Lara Sweet said in February the company does not expect a decline in daily active users count for the period. However, investors on Tuesday afternoon will be paying close attention to whether Snap’s user base grew, shrunk or stagnated.

Earlier this month, eMarketer slashed its growth outlook for Snap in 2019, indicating the Venice, California-based company could see a 2.8% decline in the number of U.S. users this year who engage with the platform on a monthly basis. (Previously, eMarketer projected of a 6.6% increase in monthly U.S. users to 90.4 million). EMarketer chalked up the potential user departures to Snap’s unpopular app redesign in late 2017, which CEO Evan Spiegel acknowledged in May 2018 hurt user engagement with the app and “created apprehension” among some advertising partners. Indeed, Snap lost 3 million users during the second quarter of 2018, marking the first time the company lost users, in part because of the redesigned app but also because of increasing competition from Instagram and other social networking platforms that have copied Snapchat’s Stories feature.

Source: Yahoo Finance graphics

Snap, which typically breaks out its user numbers based on how many engage with the platform on a daily basis, disagreed with eMarketer’s forecast and called its study “flawed.”

Bullish analysts

Some analysts are decidedly more bullish on Snap than eMarketer, however.

Credit Suisse analysts Stephen Ju, Nicole D’Souza, Philip Wang and Yoni Yadgaran project Snap will gain 3 million monthly active users for 2019. (They had previously estimated a loss of 1.5 million monthly active users for the year.) Credit Suisse’s newer estimates stem from the long-awaited release of Snap’s Android app update earlier this month which addressed issues around the app’s stability and anticipation around accelerated advertising revenue growth during the second half of this year, as well as Snap’s ongoing ability to tap into a younger audience.

“Snap is a scarce asset that offers advertisers access to a coveted younger demographic,” wrote Ju, Souza, Wang and Yadgaran in their note, published on Monday.

Likewise, Wedbush analysts Michael Pachter, Matthew Breda, and Nick McKay wrote in a note last week that Snap’s recent Android update ought to help in “enhancing the app’s appeal to non-U.S. users.”

Looking ahead, Pachter expects Snap to finally break even by fourth-quarter 2019.

“The company has also generally taken several steps to improve the utility of its app, increase user engagement, and explain its value proposition to advertisers, and pending evidence to the contrary, we remain confident that Snap will turn the corner sooner rather than later,” Pachter, Breda and McKay added in their note.

Over the last several months, Snap has made concerted efforts to grow its appeal to users and advertisers, which includes the long-awaited Android app update, which was at least two years in the making. Also in early April, the company announced a number of major updates, including Snap Games, a gaming platform with a focus on original, casual games with six-second advertisements, 10 new original shows to watch, and more augmented reality features.

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