(Corrects JPMorgan expectation of user growth in paragraph 12)
By Angela Moon and Saqib Iqbal Ahmed
NEW YORK May 10 Snap Inc has many
similarities with archrivals Facebook Inc and Twitter Inc
, but shareholders are eager to avoid one in particular
when the social media company reports earnings on Wednesday for
the first time since its initial public offering: a plunging
Investors delivered a stern message of disappointment to
Facebook and Twitter when they posted debut quarterly scorecards
following their IPOs. Twitter shares cratered 24 percent the
following day, while Facebook's tumbled 11 percent, drops that
stand to this day as the biggest one-day losses for both.
The options market is already positioned for a double-digit
swing in Snap shares by the end of this week.
One key to Snap, the owner of the wildly popular Snapchat
messaging app, dodging a similar reception from the market rests
on whether its user growth and engagement measures meet
investors' expectations as Facebook aggressively copies its most
The earnings report and subsequent conference call after the
bell "will be make it or break it" for Snap, said Eric Kim,
co-founder and managing partner at Goodwater Capital.
The stock, which started trading in March in the largest
tech IPO since Facebook's in 2012, jumped 44 percent on its
debut, but has since fallen 5.5 percent from that day's closing
FOCUS ON USER GROWTH
Wall Street expects Snap to post a quarterly loss of 19
cents per share, according to Thomson Reuters I/B/E/S. Analysts
expect revenue of close to $158 million, roughly four times the
$38.8 million figure from a year earlier, but down about 5
percent from $165.7 million for the fourth quarter of last year.
But investors will focus on Snapchat's user numbers and how
the service is holding up against encroachments by rivals.
In recent months, Facebook has launched Facebook Stories, a
near-identical clone of Snapchat's most popular feature, also
called Stories. The feature lets users post a string of videos
and photos that disappear after 24 hours and is also available
on other Facebook services, including Instagram and WhatsApp.
"Much of the call should be around Stories as it represents
the bulk of Snap's future value given the importance of video
advertising to the company's relatively nascent business model,"
Goodwater's Kim said.
Facebook recently announced that Instagram Stories alone had
reached 200 million daily active users (DAU), eclipsing
Snapchat's year-end overall DAU count of around 161 million.
JPMorgan expects Snap's first-quarter DAU to grow to 166
million, while Monness, Crespi, Hardt & Co Inc is targeting 173
Snap still may have an edge over Facebook with its active
user base aged between 18 and 34, many of whom visit more than
18 times a day and are a highly coveted group for advertisers.
"Our favorable outlook on Snap stems not only from the
company's ability to innovate and cater to millennials in high
value markets, but also capture publisher content and consumer
mindshare as video consumption grows on digital," said James
Cakmak, an analyst at Monness, Crespi.
A POPULAR SHORT
Despite a modest rally in Snap shares in recent weeks, short
sellers - who aim to make a profit by selling borrowed shares
and buying them back at a lower price later - have not let up in
placing bearish bets, according to Ihor Dusaniwsky, head of
research at financial analytics firm S3 Partners.
"We saw $100 million worth of short selling in this past
week, ahead of the earnings and Snap short interest stands at
$946 million, which is the highest level since the IPO," he
Meanwhile, options market activity suggests a swing of about
13.5 percent in either direction by Friday, based on the price
of certain options expiring this week.
"Snap's option activity was bullish last week, but the bears
came out in greater force just two days before earnings," said
David Russell, senior manager at online broker E*Trade in
(Additional Reporting by Noel Randewich in San Francisco;
Editing by Dan Burns and Bill Rigby)