Can Snap (SNAP) be saved? CEO Evan Spiegel thinks so, but investors don’t seem to be listening. That puts the social-media company in an odd position as it prepares to report third-quarter results Thursday after the market’s close. Spiegel has reportedly voiced his determination to make the parent of Snapchat profitable next year, but the stock continues to slide. Spiegel recently wrote to employees, as reported by the website Cheddar, that this “was the year that Snap evolved from a product into a company.” The transition, however, has been challenging—and Wall Street doesn’t think profits are in the offing now or in the future.
Meanwhile, at a recent $6.76, the stock is down more than 50% in 2018, and off even further since its March 2017 initial public offering. That’s a major disappointment for a stock that many expected to be the next big social network. Snap didn’t respond to a request for comment Tuesday morning. Analysts are looking for losses of 27 cents per share for the quarter and $1.07 for the year, followed by continued, though shrinking, losses in 2019 and 2020, according to FactSet. Analysts are sure to have questions for Spiegel about his now-infamous memo, which many investors interpreted as an identity crisis, on Thursday.
Spiegel’s plans are being undermined by Snapchat’s sliding daily active user base, a troubled redesign, and fierce competition—especially from Facebook ’s (FB) Instagram. Earlier this month, UBS analyst Erik Sheridan pulled his price target down to $6—below current levels—from $10 while pulling his near-term estimates downward slightly, citing a hangover from the redesign effort, lower user engagement, and lower demand from advertisers. “Our intra-quarter advertising checks continue to paint a cautious picture, pointing to lackluster advertiser demand, continued pricing pressure…and open questions around user/engagement trajectory post app redesign,” Sheridan wrote.
And SunTrust Robinson Humphrey’s Youssef Squali cut his price target to $8 from $13 on Monday, citing both near-term earnings concerns and broader issues. “We find [Spiegel’s] goal of profitability in fiscal 2019 rather optimistic,” he wrote.
There is some good news: Snap should theoretically offer investors (and advertisers) an appealing mix of user demographics and engagement; it’s also largely avoided the data security headaches that have lately dogged competitors. Quarterly revenue is expected to grow nearly 33% year over year. And there are still bulls out there—FactSet’s average price target is above $10. Wedbush’s Michael Pachter on Tuesday reiterated his $12.25 price target on the stock.
“Snap has a structural advantage with its youthful user base, insofar as the service is sticky and few users are expected to abandon Snap, while millions of new users get their first mobile phones each year,” Pachter wrote. “We think that this demographic edge positions Snap to add at least 15 million net daily average users each year for the foreseeable future; if we’re right, we expect Snap shares to materially appreciate in the coming year.”