Why Snap Inc (NYSE: SNAP) stock is under pressure

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Snap Inc (NYSE: SNAP) stock lost over 6.4% in the after-hours session of July 22nd, 2020 (Source: Google finance). The firm reported an negative Adjusted EBITDA to $96 million during the second quarter of 2020 as the firm is investing in its advertising partners for long term. The firm’s Operating income was negative $311 million, during the second quarter of 2020 despite compensating weak adjusted EBITDA with lower stock-based compensation which fell over 5% yoy in total. The firm’s Net income was negative $326 million, due to rising interest expense related to the convertible notes issued over the course of the past year, and the one-time gains in the prior year related to the disposal of certain assets.

On the other hand, the daily active users rose 17% yoy to 238 million during the quarter while revenue rose 17% yoy to $454 million. The firm has >100 million people in the U.S. alone. Their AR platform is also accelerating, with the number of people playing with Lenses every day rising 37% on a yoy basis driven by talented Lens creators and partners that are creating and distributing Lenses on Snapchat. The advertising business surged 17% yoy to $454 million in revenue. In the U.S., the firm’s platform reaches 90% of 13 to 24 year olds and 75% of 13 to 34 year olds. Snap pixel is being adopted by e-commerce business to optimize for down-funnel purchase objectives, driven by rising demand. Of the total audience reach, 62% was unique to Snap. The campaign drove a 9-point lift in Ad Awareness, and a lift in Purchase Intent that was 4.5x the Snap US CPG Norm. North America revenue rose 18% on a yoy basis during the second quarter of 2020 while Europe revenue rose 30% on a yoy basis as the region was less impacted by advertisers pausing spend to swap out creative messaging in Q2. Rest of World revenue rose 2% on a year-over-year basis during the second quarter of 2020 hurt by COVID-19 impact. Gross margins rose one percentage point to 47% during the second quarter of 2020. On the content side, the firm has been doubling down on their investments in premium content, and are seeing productive returns on these investments with the daily average number of Snapchatters watching Shows growing >45% year-over-year during the second quarter of 2020.

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