What to watch in Snap's Q3 earnings: Lowered expectations
Snap (NYSE:SNAP) will post its third-quarter results after the closing bell Thursday - and it's set to become the beneficiary of lowered expectations, after it issued its stark May warning about deteriorating macro conditions (and then followed that up with a disappointing Q2 report in July).
May 23 brought a sharp guidance cut where the company poured gloom on forecasts it had provided just four weeks beforehand. "Since we issued guidance on April 21, 2022, the macroeconomic environment has deteriorated further and faster than anticipated," the company said in warning that Q2 revenues and EBITDA would fall below the low end of its previous range. The next day brought a 43% tumble in the shares, its worst ever, and the warning may have tanked the entire market.
A revenue shortfall in those Q2 results led the company to say it would slow hiring and operating expense growth, and the stock slid more than 39% the day after the print.
All in all, Snap stock (SNAP) has tumbled 77% year-to-date, and nearly 86% over the past 12 months.
Analysts have taken heed. In the past three months, estimates for quarterly earnings per share have been revised down 17 times, vs. just three increases. Revenue expectations have been cut back even more notably: That figure has seen 29 downward revisions in the past three months vs. just two raises.
That lowers the bar for the struggling company. But Snap (SNAP) may also benefit from what observers see as an Internet ad environment that's somewhat improved from some dire forecasts that came in the first half of 2022. In Snap's July 21 earnings call, it noted revenue was nearly flat year-over-year in the then-young Q3. Citi on Wednesday maintained Meta Platforms as one of its top picks, with one reason being the improvement in online advertising even against continuing macro weakness.
Wall Street expects Snap to post adjusted earnings per share of -$0.01, a third straight quarter of per-share losses after the company eked out a $0.01 profit per share in the fourth quarter of 2021. Revenues are seen coming in at $1.14B - 6.4% year-over-year growth, and also marking its highest number since the end of 2021.
Daily active users are forecast at 358.7M, which would mean a quarter-over-quarter gain of more than 11M users. Average revenue per user is forecast at $3.19, and the company is expected to generate negative free cash flow of $105.1M.
Snap ended Wednesday with a 2.5% gain after Citi launched a short-term positive catalyst watch, pointing to an ad industry improvement and improved profitability profile that would likely lead Snap to beat the Street.