Should You Buy, Sell or Hold Snap Stock Ahead of Q3 Earnings?

Snap SNAP is set to report third-quarter 2024 results on Oct. 29.For third-quarter 2024, Snap expects total revenues between $1.335 billion and $1.375 billion, implying year-over-year growth of 12-16%. Adjusted EBITDA is expected between $70 million and $100 million.The Zacks Consensus Estimate for revenues is currently pegged at $1.35 billion, indicating a 13.9% increase from the year-ago quarter’s reported figure.The consensus mark for earnings has remained unchanged at 5 cents per share in the past 30 days.Find the latest earnings estimates and surprises on Zacks Earnings Calendar.SNAP Estimate MovementImage Source: Zacks Investment ResearchEarnings Surprise HistoryThe company’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters and matched in one, the average surprise being 81.07%.Snap Inc. Price and EPS Surprise Snap Inc. price-eps-surprise | Snap Inc. QuoteEarnings WhispersOur proven model does not conclusively predict an earnings beat for Snap this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.SNAP has an Earnings ESP of 0.00% and a Zacks Rank #3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.Factors Shaping Upcoming ResultsSnap has been benefiting from a spike in the usage of Snapchat. The growing adoption of Snapchat among the Gen Z (13-24 years) population is expected to have driven Daily Active Users (DAUs), thus expanding the company’s advertiser base.For the to-be-reported quarter, the company expects DAUs to be 441 million. In the second quarter, Snapchat’s subscriber growth, reflected by DAUs, increased 8.8% year over year to 432 million. Snap added 10 million DAUs on a quarter-over-quarter basis.Our model estimate for third-quarter global DAUs is currently pegged at 441 million, indicating growth of 8.7% from the year-ago quarter’s level. The model estimate for DAUs in North America, Europe and ROW is currently pegged at 102 million, 99 million and 240 million, respectively.Snap is benefiting from the strong adoption of Augmented Reality (AR) Lenses, Discover content, Shows and Snap Map. In the third quarter, Snap announced the introduction of the fifth generation of Spectacles, standalone AR glasses powered by Snap OS, the company’s brand-new operating system, which enables users to use Lenses and experience the world together with friends in totally new ways.The Snapchat+ subscription service reached more than 11 million paying subscribers in the second quarter. Features like Creator Collab Campaigns and Snap Promote are expected to have aided subscriber growth in the to-be-reported quarter. Our model estimate for Snap’s third-quarter ARPU is pegged at $3.05, suggesting an increase of 4% from the year-ago quarter’s reported figure.The company has made considerable progress in diversifying revenues with Snapchat+, ARES and sponsored AR advertising. The introduction of My AI, a ChatGPT-powered chatbot, directly integrated into Snapchat, demonstrates its commitment to incorporating cutting-edge AI technology into its core product. This move, coupled with its efforts to enhance AR features and content creation tools using AI, indicates Snap's recognition of AI's potential to drive user engagement and retention.Snap launched AI Lens in the quarter under review. For Snapchat+ subscribers, AI will act as a personal creative director, adding captions and Lenses to Memories, giving them a whole new spin. My AI can now interpret Snaps of complex parking signs, translate menus in a foreign language, or help identify unique plants.Price Performance & ValuationSnap has seen its stock price plummet 39.8% year to date and underperform the Zacks Computer and Technology sector’s return of 25.3%, leaving investors questioning whether to maintain their positions or cut their losses. The company faces significant challenges despite its innovative AI and AR initiatives. Weak advertising spending and intense competition from tech giants like Meta Platforms META and Alphabet GOOGL pose immediate threats to top-line growth. The company's ability to monetize its AI features, particularly in advertising, will be crucial for financial success.SNAP Underperforms Sector, PeersImage Source: Zacks Investment ResearchSnap's premium valuation, reflected in its forward 12-month price-to-sales ratio of 2.81 — higher than the Zacks Internet - Software industry average of 2.67  — suggests high growth expectations but also implies elevated risk.SNAP’s P/S F12M Ratio Depicts Stretched ValuationImage Source: Zacks Investment ResearchThis valuation, coupled with profitability concerns, underscores the critical importance of Snap's ability to effectively monetize its user base and bring innovative features in an increasingly competitive market.Investment Considerations: Balancing Risk and RewardSnap maintains a strong position in the youth demographic market, with 75% penetration among 13–34-year-olds in developed markets. Their augmented reality (AR) technology leadership creates opportunities in both consumer engagement and enterprise solutions. While facing intense competition from TikTok and Meta, Snap's recent focus on cost optimization and AI-driven content recommendations shows promise for margin improvement. However, the company's advertising revenue growth remains vulnerable to macroeconomic conditions and platform changes. Their strategic investments in AR commerce and premium subscriptions could diversify revenue streams, though monetization efficiency still lags behind peers. Recent product innovations in AI features may help drive user engagement and advertiser value.Final ThoughtsSnap's 39.8% YTD plunge presents a complex investment scenario ahead of third-quarter results. While the company's AR innovations and cost discipline initiatives are promising, advertising spending uncertainty amid mixed macroeconomic signals could put pressure on results. The platform's recent AI investments may not yield material revenue impact within this timeframe. Investors might benefit from waiting for clearer evidence of sustained advertiser demand and monetization improvements before establishing positions. A post-earnings entry point could offer better risk-reward dynamics.5 Stocks Set to DoubleEach was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.Today, See These 5 Potential Home Runs >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Alphabet Inc. (GOOGL): Free Stock Analysis Report Snap Inc. (SNAP): Free Stock Analysis Report Meta Platforms, Inc. 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