Earnings Outlook: Snap earnings preview: Momentum is still on its side because of ad growth

The resurgence of Snap Inc. last year was a testament to robust growth in advertising sales and users, vaulting the company’s shares 166%.

Expect the latest snapshot of its dramatic business comeback when it reports fourth-quarter results after markets close Tuesday.

Snap SNAP, -2.65% was on track to generate $1.53 billion in net worldwide ad revenue by the end of 2019, up 45% over 2018, according to eMarketer’s October 2019 forecast. This would give Snap a 0.5% share of the worldwide digital ad market, and a 0.6% slice of the worldwide mobile ad market – far behind market leaders Alphabet Inc. GOOGL, -1.48% ( GOOG, -1.48% (32%), Facebook Inc. FB, -3.64% (21.1%), Alibaba Group Holding BABA, -0.95% (9%), Amazon.com Inc. AMZN, +7.38% (3.8%), and Baidu Inc. BIDU, -1.73% (2.9%).

Wall Street analysts are forecasting a strong finish to 2019 and “expect such momentum to persist in 2020,” UBS’ Eric Sheridan said in a Jan. 16 note that upgraded Snap’s stock to Buy from Neutral and raised its price target to $24 from $16.

“We see a renewed [management] team focused on driving a mix of user growth (especially the Android refresh) and ad monetization that could produce multi-year revenue growth even above our newly raised forecasts,” Sheridan wrote. He calculates Snap’s advertising sales will grow 39% year-over-year in 2020 and 33% in 2021.

“SNAP seems set up for another strong performance in 4Q19 and 2020,” Barclays analyst Ross Sandler said in a Jan. 22 note that maintained an Overweight rating and upped Snap’s price target to $22 from $20. “We think stock performance will be much more gradual from here given the big recovery in market cap last year.”

Jefferies’ analyst Brent Thill believes Snap’s stock will continue to improve in 2020 because of accelerating user growth outside the U.S., and ad sales catapulting revenue more than 30% over three years. Thill raised his rating to Buy from Hold while raising his price target on Snap shares to $21 from $17.

What to expect

Earnings: Of the 29 analysts surveyed by FactSet, Snap on average is expected to lose 12 cents a share, up from -13 cents a share expected at the beginning of the quarter.

Estimize, which crowdsources estimates from buy and sell-side analysts, fund managers, academics and others, is forecasting EPS of 0 cents, based on 57 estimates.

Revenue: Wall Street expects revenue of $563 million from Facebook, according to 34 analysts polled by FactSet. Analysts are looking for monthly active users (MAUs) to improve 14% year-over-year to 536.5 million, according to FactSet. Snap reported revenue of $390 million during last year’s fourth quarter, and a loss of $192 million, or -14 cents per share. Snap then reported 470.9 million MAUs.

Estimize is forecasting revenue of $561 million, based on 62 estimates.

Of the 40 analysts who cover Snap, 20 have buy or overweight ratings, 18 have hold ratings, and 2 have a sell rating, with an average price target of $19.43, according to FactSet data.

Stock movement: Snap shares are up 166.4% over the past 12 months, compared to a gain of 19.4% for the broader S&P 500 index SPX, -1.77% .