Snap’s earning call on 21 July 2022. Here’s some highlights from earnings call:
Snap letter to investors with the starting note on challenges lies ahead:
- Changes to platform policy
- Increasing competition in dollar advertising
- No earning estimates for quarter 3 2022.
Commitments from Snap:
- Streamlining hiring and reprioritizing company’s goals and initiative
- Implementing stock repurchasing program
- Commitments from Co-Founders, Bobby Murphy (CTO) and Evan Spiegel (CEO) at least til 1st January 2027
- Stock split in the form of Dividend if Class A share price reaches $40 within next 10 years.
Product Developments
Advertising performance measurement solution:
- Privacy-preserving first-party (1P) measurement tools (Advanced Conversions AC and Estimated Conversion EC), advertisers’ preferred third-party (3P)
Invest in ranking and personalisation.
Easing first-party attribution solutions through partner integrations by making it easy to integrate and less costly with Conversion API (CAPI) with 171% increase in ad spent return on web spent and increase observability measurements.
Augment Reality driven advertising. Pursuing AR shopping tools via Camera Kit for shopping. Puma’s AR footwear is the 1st global brand partner to adopt this technology
Snapchat+ subscription base $3.99/month in US, UK, Canada, Australia and New Zealand.
Snap Map, expanding average revenue per user (ARPU) to local base advertising products by highlighting promoted places on the map.
Summary Financial Performance
Revenue y-o-y grew 13% to $1.11B.
Adjusted EBITDA of $7M
Net loss $422M Vs net loss $152M, impacted by $91M unfavourable investment, $51M higher depreciation and amortisation of intangible asset, $47M higher stock base compensation.
Stock-base compensation 2.5%, up 1.7%. prior year.
Announcement of stock repurchasing program $500M over trailing 12 months.
Cash and marketable securities of $4.9M Vs outstanding debts of $3.7M.
Trailing 12 months free cash flow -$147M Vs $172M with operating cash flow -$124M Vs $260M
Daily Active User (DAU) grew 18% y-o-y to 347M.
Total personnel costs y-o-y 44% driven by 38% increase in full-time head count and impact from acquisition completed over last year.
Marketing costs increase 86% y-o-y, both contributing 4% y-o-y growth rate.
Takeaways
The Challenges
Its clear that after APPL privacy updates resulted in Ads less prompt to track users behavior.
Its a sour eye for digital ads company such as Snap, Meta, Alphabet and the likes but great for consumer with better privacy managed.
Revenue Warning Signs
Base on the latest US digital ad spending, this space could grow by 31% at the end of 2025, 3 years from now. Hamper by escalating inflation, the Fed’s interest rate hike and slow down in macroeconomy, the first line of defense for companies would be hold off recruitment and slow down ads spent.
The above estimation may not represent how it play out in actual fact.
Snap’s revenue globally seems increased y-o-y 13%, however closer look at it seems North America and Europe are slow in its revenue growth of only 12% y-o-y as compare to the rest of the world revenue segment of 21% y-o-y growth.
This is a sign of further headwinds in US digital ads space and such headwinds would not settle anytime soon.
Bright ideas?
Stock buy back may serve as a commitments toward maintaining the dilution of common share outstanding, assuming on average quarterly stock base awarded of $94M, such buy back would only be able to maintain its dilution within 5 quarters max. The dilution kicks in after 6th quarters set in.
Furthermore, such stock buy back would further weaken Snap’s cash flow where in fact such resources could better spent on getting growth and revenue focus activities or even R&D to level up Snap’s apps capabilities.
Snap could faces double whammy where funding tied up in stock buy back and at the same time if Snap continue to offer stock compensation, average 12 months trailing could easily costs Snap at least $876M with the combination of stock buy back and stock compensation running concurrently.
Stock Split?
Having Stock split in the form of Dividend when Class A share price reaches $40 within next 10 years would no doubt give leeway for investors to place trust that all its good and well, given that reaching $40 stock price is beyond reach.
The further upside, at least for the founders’ is that they able to maintain their dominant control over Snap Inc while cashing out when stock hits $40 (which its just did not long ago - 1st May 2022)
Snap have been self consciously planning for their own benefit rather than focus on making sure that the company’s future plan or at least the next 12 months plan to better managed its growth and profitability.
Would the above be sustainable in convincing the investors that Snap still have the edge in pushing itself higher in digital advertising space?
If they focus on attracting new partners in their AR shopping platform, it would give a new stream of sustainable revenue as Metaverse world mature in some years to come.
At this current junction, I believe the stock fall has yet to cease, if you want to for long position, best to DCA and wait for Snap to cool its headwinds.
With the current Price/Book of 4.77, discount of 37% (holding time on uncertainty + buffer of margin of safety) means that Price/Book is about 3 where stock price is roughly about $6.27. Anything above might warrant risky to my opinion.
What do you think? To Snap or not to Snap?
Comments