To beat Facebook, Snap needs to prove that it can make more money off of fewer users

Last month, Snap found itself in the midst of a sudden controversy.

Its 26-year-old CEO, Evan Spiegel, was alleged to have said (according to a former employee who is suing the company) that he didn’t “want to expand into poor countries like India.”

Snap quickly denied that Spiegel ever made the comments , but the damage was already done. Snapchat’s app ratings in the Google Play store took a nosedive, and “BoycottSnapchat” quickly became a trending topic on Twitter in India.

Now that Snap is set to report its first quarterly earnings as a public company on Wednesday, investors are wondering if the company can grow its ad business and user base in the face of fierce rivals like Facebook. And they will be looking to Snap for evidence that there’s enough room for it to grow in highly developed, rich countries.

While Facebook builds drones to beam internet access to sub-Saharan Africa, Snap executives have frequently touted their app’s popularity in North America and Europe, where the vast majority of advertising dollars are spent.

In Snap’s initial prospectus filing from February, the company said it had more than 60 million daily active users in the US and Canada. That number is roughly a third of the 182 million daily active users Facebook has in the same region. And while Facebook commands nearly 2 billion monthly users, half of its $US8 billion in revenue last quarter came from the US and Canada.

The company’s stock finished Tuesday’s regular session at $US23.32, just below its opening price of $US24 when it made its Wall Street debut in February. To win back investors’ good graces, Snap needs to make the case that its business is not just a flash in the pan.

If Snap can prove that it’s able to make more money off fewer users, it could curb the comparisons to Facebook that plagued Twitter during its early days as a public company. To do that, Snap will need to show that it can grow its average revenue per user even if its overall user growth continues to slow.

Here are the expected numbers for Snap’s Q1 earnings, based on analyst projections compiled by Bloomberg:

  • EPS (adjusted): Net loss of $US0.17.
  • Revenue: $US159 million.

Get the latest Snap stock price here.

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