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Snap is expected to show more users — but still big losses — when it reports after the bell

  • DAU estimate: 174.61 million, adding more than 9 million daily active users from last quarter, according to FactSet.
  • Revenue estimate: $186.2 million, up from $71.8 million in the year-ago period, according to Thomson Reuters consensus.
  • Adjusted loss per share: 14 cents per share, according to a Thomson Reuters consensus estimate.
Evan Spiegel, Snapchat
Getty Images
Evan Spiegel, Snapchat

After disappointing Wall Street out of the gate, Thursday is Snap's chance to snatch back its status as a social media darling.

Snap is scheduled to report second-quarter financial results after the bell, when analysts expect the company to add more users than last quarter. That could show investors that the company — which is still expected to lose millions of dollars this quarter — is still growing its user base quickly.

Second-quarter expectations

The company is estimated to report about 174.61 million daily active users for its disappearing message app, adding more than 9 million daily active users from last quarter, according to FactSet. That would be a faster pace of growth than the 5 million daily users added in the fourth quarter and the 8 million added in the first quarter.

Snapchat uses advertising — like short video clips and augmented reality filters — to make money, so a growing pool of users means there's a growing number of eyeballs that will see those ads.

Indeed, Snap's second-quarter revenue is expected to be way up from a year ago: Analysts polled by Thomson Reuters expect revenue of $186.2 million, compared with $71.8 million in the year-ago period.

But that's not necessarily enough to cover Snap's ballooning expenses. Snap is expected to post an adjusted loss of 14 cents per share, according to a Thomson Reuters consensus estimate.

The second-quarter report will be Wall Street's first look at a more stripped-down version of Snap's expenses as a public company. Last quarter, the company booked a net loss of $2.2 billion, driven by $2 billion in IPO-related expenses. But over the past few years, Snap has also shelled out on marketing, R&D and new hires, according to its IPO prospectus.

Post-IPO slump

Snap's lively March IPO was considered a rousing success at the time, with shares jumping 44 percent on the first trading day. The fervor was fueled, in part, by the app's explosive user growth and revenue growth. In the second quarter of last year, Snap had an average of 143 million daily active users, with revenue of about 50 cents per user, its IPO prospectus said. In Thursday's report, analysts surveyed by FactSet expect that average revenue per user to rise to $1.07.

But since the offering, the shares have been under pressure, falling nearly 41 percent over the past three months. Snap's first-quarter user and revenue growth came in below analyst expectations in May, with 166 million global daily active users and sales of $150 million.

Enthusiasm has waned among Wall Street analysts, including IPO underwriter Morgan Stanley.

The end of August also signals the wind down of Snap's lockup period, when insiders and early investors will finally be able to trade their shares on the public market. It's a time that often pressures stocks as investors look for signs that the core backers still believe in the company's long-term value. In the month before the lockup expiration for Facebook, Twitter and LinkedIn, their stocks were down by an average of 24 percent, according to MKM derivatives strategist Jim Strugger.

But so far, no Snap insiders have declared major changes to their share holdings with the Securities and Exchange Commission.

Daunting competition

CEO Evan Spiegel didn't waver in addressing competition last quarter, telling analysts in a conference call: "People are going to copy your product if you build great stuff. ... Just because Yahoo has a search box doesn't make it Google."

Spiegel has tried to focus investors on the app's daily engagement, with young users opening the app more than 10 times a day and spending 20 minutes or more. But multiple agencies have told CNBC that interest in Snapchat among advertisers is flat to declining as many influencers and creative agencies look to Facebook's Instagram.

Instagram has recently added the disappearing images that Snapchat is known for, as well as animated face mask effects. Facebook CEO Mark Zuckerberg has signaled serious intent to overtake Snapchat in augmented reality as well.

Google, to a lesser extent, could also prove a rival to Snap, given its dominance in digital search advertising. Google's mobile app now features a feed that mimics Facebook's social network. Google is also in talks to create a quick-loading media platform similar to Snapchat's Discover, according to The Wall Street Journal.

Google's Android platform has already proven troublesome for Snapchat. During Snap's pre-IPO roadshow, Spiegel attributed slowing user growth to challenges from Android's low-end devices.

With most of its customers on iPhones (at least as of earlier this year), Snap is also beholden to Apple. Although Apple does not make money from advertising, the company's upcoming software updates signal that it has bold ambitions for augmented reality in the next iPhone. It's possible new features might have the potential to distract users from Snap's hallmark Lenses, which impose shape-shifting filters, like puppies or glasses, over faces and objects.

Nonetheless, some in the industry remain optimistic about Snap's competitive position.

Martin Sorrell, CEO of advertising giant WPP, told CNBC's "Squawk Box" this month that his company plans to double its spending on Snap this year.

— CNBC's Michelle Castillo, Berkeley Lovelace, Thomas Franck and John Shinal contributed to this report.

Disclosure: CNBC parent NBCUniversal is an investor in Snap.