Snap Stock Has a Lot to Prove on Tuesday

Don't look now, but one of this year's earlier IPO dogs is starting to bark its way back into favor. Shares of Snap, Inc. (NYSE: SNAP) have moved higher for three consecutive months, and if it wants to stretch that streak to four, it's going to have to come through with strong quarterly results after Tuesday's market close.

Snapchat's parent company has seen its stock move 35% higher since bottoming out in early August. It remains a broken IPO, but given the stock's heady volatility in its brief public life, it wouldn't be a surprise if it closes above its IPO price of $17 for the first time in four months if it comes through with a blowout financial report this week. Falling short, naturally, could undo three straight months of upticks.

Banking on big growth

Analysts see revenue soaring 87% to $239.45 million, a big step up, but actually its fifth consecutive quarter of decelerating top-line growth. Every analyst modeling the stock's performance is bracing for a deficit, with the average target clocking in at a loss of $0.15 a share.

Red ink and slowing growth won't be deal-breakers. Triple-digit revenue gains couldn't save the shares from taking a 21% hit the day after posting its first financial results as a public company in early May. Snap stock suffered a 14% decline the day after posting disappointing results for its second quarter three months later. Investors were turned off by slightly larger deficits than what Wall Street pros were expecting, but also uninspiring growth in daily active users. If Snap stock wants to keep its recent rally going, it's going to have to land ahead of the prognosticators while also strengthening its user count and engagement levels.

It's a problematic sign that analyst moves ahead of Tuesday afternoon's big report have been lukewarm at best. Michael Pachter at Wedbush put out a cautious note on Friday. The $212 million that he's forecasting in revenue for the third quarter is well below where most of his peers are perched. He sees Snapchat struggling to keep up with the superior targeting and similar ad formats offered by Instagram and other rivals. He's bracing for 181 million daily active users and total average revenue per user of $1.17. Snap clocked in with 173 million daily active users and $1.05 in average revenue per user in its second quarter.

Two days before Pachter's cautious note, we had Stifel's Scott Devitt forecasting that Snapchat's U.S. audience grew by just 1.1% sequentially last month, slower than market darling Instagram's 2.8% projected gain. Instagram also continues to smoke Snapchat's gains internationally, though Devitt is actually sticking to his buy rating on the shares and an $18 price target that is north of its springtime IPO price.

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Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.