Snap Q2 preview: Where next for the Snap share price?

When will Snap release Q2 earnings?

Snap, the owner of social media platform Snapchat, is scheduled to release second quarter earnings after US markets close on Thursday July 21.

Snap Q2 earnings consensus

Revenue is forecast by Wall Street to rise 16.4% to $1.14 billion and analysts are looking for adjusted Ebitda of $190,000 compared to the $117.4 million reported the year before.

Snap Q2 earnings preview

Snap shares suffered their worst one-day drop on record back in May after warning it would no longer meet its original guidance that had aimed to grow revenue by 20% to 25% in the second quarter and deliver adjusted Ebitda of between breakeven and $50 million. That has cast severe doubt over the outlook, which will remain the focus this week.

Snap is expected to have ended the second quarter with 343.6 million daily active users compared to 332.0 million at the end of the first. That would be up some 17% from the year before.

While users are set to grow across all regions, North America will be closely watched after data from Sensor Tower suggests app downloads have stalled further. This is significant because the region accounts for over 70% of all revenue and is suffering from a slowdown. Wall Street believes DAUs will rise just 4.4% in the second quarter, marking the slowest user growth in the region in years.

The user base in Europe is forecast to grow 9% while the rest of the world will remain the bright spot with 32% growth pencilled-in by analysts – but both regions are also suffering from a slowdown.

Having grown revenue by over 38% year-on-year in the first quarter, markets are bracing for a severe slowdown in the second. Markets believe advertisers have become more cautious and pulled back on spending amid the weaker economic outlook and rampant inflation, competition for younger users versus the likes of TikTok remains rife, and Apple’s IDFA changes introduced last year – making it harder for social media platforms to track online behaviour and target ads – has also shifted marketing dollars elsewhere.

For context, Snap is forecast to earn $33.41 per user in North America in the second quarter, compared to just $8.41 in Europe and $3.93 in the rest of the world. Snap is struggling to grow average revenue per user in the current environment and is forecast to grow just 0.6% overall in 2022 compared to the 17% growth delivered in 2021.

With this in mind, investors are bracing for a sustained period of slower growth. In terms of the guidance, Wall Street hopes Snap will target 17% to 18% revenue growth and adjusted Ebitda of around $90 million in the third quarter. For the full year in 2022, Snap is forecast to grow revenue by 22% but the slower growth and pressure on ad pricing is expected to weigh on its bottom-line and cause adjusted Ebitda to plunge over 30%. It is worth noting that Snap is also facing tough comparatives this year considering adjusted Ebitda rose 13-fold in 2021.

Where next for SNAP stock?

Snap has significantly underperformed the wider market since the start of the year and has lost over 70% of its value.

The stock suffered its worst one-day drop on record back in May when it issued its profit warning, sending shares to their lowest level in over two years. However, the share price has settled since then and has been in consolidation mode ever since, signalling potential for there to be a breakout once the results are released this week.

For now, the initial downside target sits at $12.80 but we could see the stock sink back toward the two-year low of $11.90 if it remains under pressure. This is a more significant level of support as a drop below here opens the door to sub-$11 and, beyond there, the pandemic-induced lows seen back in March 2020 come back into play.

On the upside, shares need to break above the June high of $15.30 before it can look to close the gap created in May and recover back above the $21 mark. The 43 brokers that cover the stock believe the selloff has been overdone this year and have an average target price of $28.22, in-line with the level of support we saw earlier in 2022 and implying the stock can more than double over the next 12 months.

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