Snap Q1 Earnings Preview: 3 Things to Watch, From Spectacles to Original Content

Here’s what investors will be looking for in Snap Inc.’s first earnings call

With Snapchat parent Snap Inc. set for its first earnings report this week, it’s worthwhile to consider the circumstances of its chief competitor — Facebook — from nearly five years ago.

Facebook went public in May 2012, and by July, its shares had dropped more than 10 percent and hit an all-time low of $24 following its first quarterly report. It wasn’t an issue of financial metrics missing the mark — the company beat on revenue, and earnings per share were in line with forecasts. Instead, it was an issue of direction, with investors and analysts concerned with uninspiring user growth and the product’s slow adaptation to mobile.

But Facebook founder and CEO Mark Zuckerberg charted his company’s course away from the wreckage and toward a mobile future — and turned it into a shareholder’s paradise, as Facebook currently trades at $150 a share. And Facebook’s emphasis on mobile, along with the expansion of its overall network, has seen its monthly active users double to two billion — with more than one billion accessing the site via mobile devices on a daily basis.

Similarly, Snap’s initial quarterly report will not sink or swim on its Q1 earnings per share, but rather on its torchbearer’s game plan for the years to come. With Facebook beating them at their own game, it’s critical that Snap CEO Evan Spiegel harnesses his company’s position as an industry tastemaker to create separation from its imitators. And with Spiegel and co-founder Bobby Murphy having an ironclad grip on the company, its future is wholly in their hands.

Everyone will be focused on Snap’s decelerating user growth, and understandably so. Still, Snapchat has 160 million daily users. We can also anticipate a better than expected monthly active user and daily active count, simply from the exposure of being the year’s highest-profile IPO. But the development of the avenues that’ll foster an audience is where Spiegel’s attention should ultimately reside.

Here are three areas of particular interest in Snap’s upcoming report:

1. Spectacles

Snap calls itself a “camera company” in its filings, so it’s only natural to be intrigued by its maiden voyage into hardware. While not Google Glass-ugly, there’s plenty of skepticism about of the widespread appeal of Spectacles. The good news for Snap, though, is it doesn’t have to be a smash. If merely five percent of users buy the $130 sunglasses, it’ll generate $1 billion in revenue, while continuing to funnel users towards Snapchat.

2. Original Content

Will Snap have more original programming to announce? A dating show isn’t exactly reinventing the wheel, but the company may have more to offer in terms of Snapchat Shows.

Snap has already experimented with small-scale productions, like with “ABC’s Watch Party: The Bachelor” — a weekly recap of the reality dating series with a trio of commenters watching clips from the latest episode. Building on this foundation would provide an added versatility to Snapchat Discover, which has primarily been a source for media outlets to share articles and short-form video content.

Streaming three-to-five minute programs still fits with Snap’s ethos, while giving the company another property to roll out ads against.

What’s more, unique and intriguing content will provide not only a reason for new users to check out the app, but also keep its current audience glued to their phones.

3. Something New

Whether it’s building on its recent AR additions or a complete out-of-left-field surprise, investors will be looking for Snap to continue differentiating itself from other social media platforms. Adding cool new features is a nice touch, but it’s still an easy opportunity for Instagram and others to mimic. It’ll take something noteworthy to move the needle — now that Zuckerberg has been able to routinely drink his competition’s milkshake, it puts an increased pressure on Spiegel to distinguish Snap from the pack once again.

These three components will be vital in Spiegel’s two-pronged objective: assuaging the market’s growth fears, and mapping Snap’s direction away from its competitors. Financials will be negligible. Accomplish this goal, coupled with the tools it is providing advertisers to track performance, and Snap will have its foundation for user and revenue growth.