💲 Can Snap Continue Its Profit Streak?

NVIDIA, Softbank abandon ARM deal.

Hey Global Investor! Here’s what you need to know before the US markets open.

Market Snapshot 📈

S&P 500 (Monday’s Close) 4,483.87 -16.66 (0.37%)

NASDAQ (Monday’s Close) 14,015.67 -82.34 (0.58%)

FTSE 100 (5 PM IST) 7,584.12 +10.65 (0.14%)

NIFTY 50 (Today’s Close) 17,266.75 +53.15 (0.31%)

USDINR (Today’s Close) 74.74 (1 Year +2.69%)

🔥 Top Movers

PTON +20.93%
CFVI +18.17%
SAVE +17.17%

CRNC -31.41%
LABD -9.27%
ZBH -9.17%

💲 Snap: Black For Good?

It has taken a decade for Snap (SNAP), the owner of social media app Snapchat, to have a profitable quarter. The hammering its shares had received after Meta declared its disastrous results was somewhat relegated to the background as the shares surged as much as 60% after the profit declaration. Can the black ink be taken for granted? (Tweet This)

An Apple A Day Keeps The Trackers Away!

Last year, Apple took user data privacy to the next level when it allowed users of the iPhone to choose whether advertisers could track them. Users were only too happy to block their tracking by potential advertisers. Meta took the biggest hit due to this change in user behavior.

Meta, which relied on user tracking to target them with ads, conceded in its Q4 earnings call that the iOS changes constituted “a pretty significant headwind” and expected ad sales to go down by $10B just because of this. This and the fact that Facebook’s active user base shrank for the first time in its 18 year history led to the shares falling precipitously, erasing $237B in market cap in a single day.

Companies like Snap and Pinterest also were expected to be hurt by Apple’s changes. Meta dragged Snap and Pinterest along with it, with Snap falling 24% in regular trading on Thursday.

Snap does not charge users to be on its platform. There’s no premium subscription service either. Revenue primarily comes from online advertising on the Snapchat app. Snap spectacles account for a small percentage as well – small enough that it’s not even mentioned in Snap’s P&L statements.

Back in October, its shares had fallen 25% when the management admitted it was frustrated by the iOS changes, which hurt the company’s ability to target and measure the effectiveness of its digital advertising. The company wasn’t sure how its advertisers, who were most impacted by the iOS changes, would react.

It turns out the advertising business bounced back from these changes faster than expected. And what’s more! The company was in the black for the first time ever!

Snapping Out Of Losses!

Beyond the profit, Snap exceeded expectations for the next quarter as well.

Key Highlights In Q4:

  • Revenue: $1.3B Vs $1.2B expected
  • EPS: $0.22 Vs $0.10 expected
  • Global Daily Active Users (DAUs): 319M Vs 316.9M expected
  • Average Revenue per User (ARPU): $4.06 Vs $3.79 expected

Snap expects to earn ~$1.05B in revenue for the current quarter, higher than the analyst expectation of $1.01B. DAU is projected to be ~329M, higher than the estimates of 327.8M.

Snap turned the Apple privacy issue on its head and made privacy an inherent part of its products. As such, the new iOS policy would reinforce its position further. The management plans to continue working with advertisers for a couple of quarters before being fully confident of the company’s new measurement solutions.

For the quarter, Snap earned a net profit of $23M, compared to a loss of $113M during the same period in 2020. CEO Evan Spiegel contended that the company had monetized its product much earlier, giving it more flexibility to adapt to Apple’s changes.

Back in 2013, Facebook had made a $3B bid for Snap which Spiegel emphatically rejected. Since then, there’s no love lost between the two companies. Today, the sell-off notwithstanding, Snap’s market cap stands at over $60B.

Before the company declared a profit for the quarter, Snap’s shares were down over 70% from their peak of $83.34 in September last year. After the profits were announced, shares surged 58%. Investors seem buoyed, especially because the company was able to come good in the face of significant disruption in the marketplace.

This makes the investors believe these profits are not simply a flash in the pan and that the losing run has been snapped for good!

For now, Snap – 1, Meta – 0.

Market Reaction
SNAP ended at $37.88, down 2.65%. Shares jumped 58% on Friday.

Company Snapshot 📈

SNAP $37.88 -1.03 (2.65%)

Analyst Ratings (41 Analysts) BUY 71%  HOLD 29%  SELL 0%

Newsworthy 📰

End: Softbank’s sale of ARM to NVIDIA has collapsed, according to sources (NVDA +1.68%)

Fallout: Meta says it may shutdown Facebook and Instagram in Europe over data-sharing dispute (FB -5.14%)

Adjustment: Tesla cut a steering component from some cars to deal with the chip shortage (TSLA -1.73%)

Later Today 🕒

  • BP Plc. Earnings (BP)
  • Pfizer Inc. Earnings (PFE)
  • Chipotle Mexican Grill Inc. Earnings (CMG)
  • DuPont De Nemours Inc. Earnings (DD)
  • Gartner Inc. Earnings (IT)
  • Harley-Davidson Inc. Earnings (HOG)
  • Peloton Interactive Earnings (PTON)
  • KKR & Co. Inc. Earnings (KKR)
  • Lyft Inc. Earnings (LYFT)
  • Centene Corp. Earnings (CNC)
  • Coty Inc. Earnings (COTY)
  • Crown Holdings Inc. Earnings (CCK)
  • Avient Corp. Earnings (AVNT)
  • Enphase Energy Inc. Earnings (ENPH)
  • S&P Global Inc. Earnings (SPGI)
  • Thomson Reuters Corp. Earnings (TRI)
  • Trivago NV Earnings (TRVG)
  • Valvoline Inc. Earnings (VVV)
  • Warner Music Group Corp. Earnings (WMG)
  • Willis Towers Watson Plc. Earnings (WTW)
  • Yum China Holdings Inc. Earnings (YUMC)

Today’s Market Terminology: Performance Bond

A performance bond is a surety bond between two parties, insuring one party against a loss if the terms of a contract are not fulfilled

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