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Wall Street takes bets on Snapchat ahead of today's second-quarter earnings

Will Snap's revenue and monthly users be enough to prevent a sell-off?

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Deutsche Bank analyst Lloyd Walmsley expects 'weak' user trends from Snap this quarter

Wall Street is making bets on Snap Inc (NYSE:SNAP) this afternoon as the struggling social media group, which runs mobile messaging app Snapchat, is set to post its second-quarter earnings after the market closes.

The principal question being asked is whether Snap’s recent efforts to redesign its Snapchat app will boost revenues and its flock of followers to the point where its downtrodden shares will be protected from a flash-fire sell-off.

A chief worry is that Snap’s results also come on the heels of the recent fallout in its rival Facebook’s shares, which endured a hammering in the wake of its latest quarter after its count of daily visitors failed to meet Wall Street’s forecasted numbers. Twitter Inc (NYSE:TWTR) shares were also down sharply over fears about a slowdown in its users.

Read: Snap shares hit all-time low as analysts slash targets on poor 1Q results

Deutsche Bank analyst Lloyd Walmsley is not putting his money on Snap in the second quarter, which follows a witheringly poor performance by the company in the first quarter.

Walmsley expects “weak” user trends from Snap in the second quarter, according to a note to investors, first seen by the business news site TheFly.com. Given that Snap’s redesign was still not ready for users of Android phones in the second quarter, he forecasts that Snap’s daily active users will fall to 188.5mln, which falls short of the Street’s estimate of 192mln.

Walmsley also thinks the redesign might push away ad buyers at least in the near-term and is cutting his second-quarter revenue estimate for Snap to US$243mln from US$249mln. As the technology surrounding Snap’s advertising platform improves, however, Walmsley predicts the company’s revenue forecasts will increase in the second half of the year.

However, he is more bullish on the company’s  “improving" monetization, particularly in the second half of this year as Snap ramps up the use of its advertising pixel, a conversion-tracking tool for brands to measure how their ads on Snapchat have impacted traffic on their sites.

Walmsley is bumping up his price target on Snap to US$13 from US$12, but sticking to a Hold rating on the stock.

Read: Snap bounces on short squeeze rally amid speculation it’s a potential takeover target

Keeping a Neutral rating on the stock, BTIG analyst Richard Greenfield also sits in the camp of worried followers of Snap. He has lowered his full-year revenue projections in 2018 to US$1.13bn and to US$1.61bn for 2019. In April of last year, he had forecast far higher revenue of US$2.5bn for 2018 and US$4.9bn for 2019.

Describing the market sentiment on Snap as “horrible,” Greenfield argues that any evidence of “success” from the company could spark an upside “overreaction” in its share price, according to TheFly.com.

Wall Street is projecting that Snap will see a loss of US$0.17 on revenue of US$251.19m when it lays out its second-quarter performance after the closing bell.

Snap shares held steady Tuesday at $13.12.

Contact Ellen Kelleher at [email protected]

Quick facts: Snap Inc

Price: 18.255 USD

NYSE:SNAP
Market: NYSE
Market Cap: $26.39 billion
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