- Analysts estimate adjusted earnings per share (EPS) of $0.08 vs. $0.01 in Q3 FY 2020.
- The pace of average daily active user growth is expected to accelerate year-over-year (YOY).
- Revenue is expected to grow at a robust pace, although at a slower rate than Q2 FY 2021.
Snap Inc. (SNAP) dramatically outperformed analysts' expectations in the most recent reported quarter as online traffic, earnings and revenue rose at a blazing pace. The gains were fueled largely by the economic recovery and new augmented-reality product offerings.
Investors will watch to see whether Snap can maintain its momentum when the company reports earnings after the market on Oct. 21, 2021, for Q3 FY 2021. Analysts expect adjusted earnings per share (EPS) to grow eight-fold year over year (YOY) as revenue surges by nearly two-thirds.
Investors will also focus on Snap’s daily active users (DAUs), a key metric indicating the size of the company’s total user base. Snap needs to grow its user base to attract more ad spending from advertisers. In Q3, analysts expect DAUs to rise by more than 20% year-over-year (YOY) for the fourth straight quarter.
Snap shares have vastly outperformed the broader market. The stock has outpaced the S&P 500 for the past year, driven by surges following the company's Q3 FY 2020 and Q2 FY 2021 earnings releases. Snap shares traded largely sideways from late July 2021 through October 2021. But overall, Snap has provided a 1-year trailing total return of 171.0%, far ahead of the S&P 500's total returns of 30.5%.
Snap Earnings History
Until recently, Snap has struggled to post positive adjusted EPS. The company reported at least seven consecutive quarters of negative adjusted EPS from Q1 FY 2018 through Q3 FY 2019, and then again in Q1 and Q2 FY 2020. That started to change in Q3 FY 2021. Since then, the company has reported four straight quarters in a row of profits through Q2 FY 2021. Analysts expect that to continue in Q3, with EPS rising 700% to $0.08.
Despite its erratic profit performance, Snap has been able to produce strong revenue growth, which is common with many fast-growing tech companies. Snap has quarterly revenue growth in each of the past 14 quarters. Between Q1 FY 2018 and Q3 FY 2020, YOY quarterly revenue growth ranged from 36.5% to 52.1% nearly every quarter, except for Q2 2020. Even in that quarter, revenue rose by a healthy 17.0%. The pace of growth has accelerated in the most recent three quarters, rising by 116.3% in Q2 FY 2021.
|Snap Key Stats|
|Estimate for Q3 FY 2021||Q3 FY 2020||Q3 FY 2019|
|Adjusted Earnings Per Share ($)||0.08||0.01||-0.04|
|Average Daily Active Users (M)||301.9||249.0||210.0|
Source: Visible Alpha
The Key Metric
As mentioned above, investors will also focus on Snap’s DAUs, which are defined as any registered Snapchat user who opens the Snapchat app at least once during a 24-hour period. Average DAUs for any specific quarter are calculated by summing the number of DAUs on each day of that quarter and dividing the total by the number of days in the quarter. The metric provides a snapshot of the size of Snap’s total user base. Snap generates the majority of its revenue through selling ad space to advertisers. The bigger the user base, the more attractive Snap’s platform is to potential advertisers. To create an attractive platform for users, Snap must continually invest in providing more engaging features than its competitors.
Snap has seen its DAU grow for nine straight quarters starting in Q2 FY 2019. In recent quarters, this pace of YOY growth has accelerated, reaching 21.6% in Q4 FY 2020 and as high as 23.1% in Q2 FY 2021. Analysts expect continued robust growth in Q3, with DAU rising 21.3% YOY, significantly faster than the same quarter a year earlier.