Snap Earnings May Give Clues About Strength Of Digital Advertising

Snapchat-owner Snap (SNAP) plans to post third-quarter earnings late Thursday that should provide insight on the strength and direction of digital advertising in the social media field. Snap stock fell ahead of the report.


Snap’s earnings report precede that of Facebook (FB), Twitter (TWTR) and Google-owner Alphabet (GOOGL), all of which report next week. All four are heavily reliant on digital ad spending, which is the source of most of their revenue.

“Based on industry data points and our agency checks, we expect continued solid online advertising growth in the third quarter across search, social, and AdTech companies,” Raymond James analyst Aaron Kessler said in a note to clients. “While we expect a deceleration in growth rates, this is largely expected given the tough Covid comparisons from the year-ago period.”

Facebook reports earnings late Monday. Twitter and Alphabet report after the close Tuesday.

Snap Stock: Slower Revenue Growth Expected

Analysts expect Snap to report adjusted earnings of 8 cents a share, on revenue of $1.1 billion, up 62% from the year-ago period. However, revenue jumped 116% in the second quarter.

“We are positive on the third-quarter setup as we expect a significant revenue beat and a clear view into revenue growth in 2022,” Jefferies analyst Brent Thill said in his note to clients. He expects Snap to provide conservative growth estimates for its fourth quarter given “many unknown headwinds.”

“Our checks indicate that Q4 ad budgets still appear healthy,” he said. Categories like movies, streaming, gaming, and fitness will be unaffected by the supply chain challenges.

Snap stock is up about 50% this year.

Venturing Into Augmented Reality

Snap calls itself a camera company. By downloading its Snapchat app to a smartphone, users have access to a wide range of features.

Its latest innovation is in the cutting-edge field of augmented reality, which overlays digital images and other information into a person’s field of view. Also, applications for the technology include navigation, education, games, commerce and more. The good news for Snap is that not only is augmented reality entertaining, it’s also a revenue driver.

Twitter stock was down 1.2%, near 65. Facebook was trading flat, near 340.65. Additionally, Alphabet dipped 0.5%, near 2,820.

The IBD Stock Checkup tool shows that Snap has an IBD Composite Rating of 93 out of a best-possible 99.

Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.


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