Snap Shares Plummet 35% After Missing Revenue Estimates and Issuing Light Guidance
Snap, the social media company behind Snapchat, experienced a significant drop in its shares, plunging 35% in Wednesday morning trading. This decline comes after the company reported lower-than-expected revenue estimates and issued light guidance in its fiscal fourth-quarter earnings report. The disappointing results have raised concerns about Snap’s ability to rebound from a challenging advertising market in 2022 compared to other firms like Meta.
Worst Day on the Market Since Debut
Snap’s stock performance on Wednesday marks one of its worst days on the market since its debut in 2017. The company previously experienced two significant one-day declines, with a 43% drop in May 2022 and a 39% plunge two months later. These previous declines were indicative of the challenges Snap has faced in maintaining steady growth and meeting market expectations.
Missed Revenue Estimates and Adjusted EPS
Snap reported revenue of $1.36 billion for the quarter, slightly below the $1.38 billion expected by analysts. However, the company did report adjusted earnings per share (EPS) of 8 cents, surpassing the 6 cents anticipated by analysts. Despite this, it is worth noting that these results mark the company’s sixth consecutive quarter of single-digit growth or sales declines.
Slower Ad Turnaround and Weak Engagement
Analysts at Morgan Stanley maintained their underweight rating of Snap and lowered their price target to $11. They noted that the company’s ad turnaround was slower than expected, and its engagement levels were weak. They also highlighted that strong ad improvements and impression growth at Meta and Amazon could pose additional challenges for Snap’s ad revenue.
Optimism Amidst Challenges
Barclays analysts remained optimistic about Snap’s future prospects, keeping an overweight rating and a $15 price target on the stock. They acknowledged that buying the dip might seem worrying but believed it was the right move. They compared Snap’s current situation to Meta’s position five quarters ago, suggesting that recovery trends could emerge with time.
JPMorgan analysts, on the other hand, reiterated their underweight rating of Snap shares. However, they raised their price target from $9 to $11 based on revenue expectations for 2025. They emphasized the need for stronger growth in engagement and the ad platform, considering the choppy recovery reflected in Snap’s fourth-quarter earnings and first-quarter outlook.
CEO Evan Spiegel’s Perspective
In an interview on CNBC’s “Money Movers,” Snap CEO Evan Spiegel expressed optimism about the company’s future. He stated that Snap is already witnessing improved advertiser performance, which is expected to drive increased revenue. Spiegel also mentioned that advertisers are seeking alternatives to large Big Tech advertising companies and that Snap’s heavy investment in its direct response capabilities is aimed at meeting this demand.
Workforce Reduction for Improved Execution
Addressing Snap’s recent decision to eliminate around 10% of its global workforce, or approximately 500 employees, Spiegel explained that these cuts would strengthen execution by removing management layers. This streamlining process would enable the company to move faster and respond more effectively to market demands.
Conclusion
Snap’s disappointing fourth-quarter earnings report and light guidance have led to a significant drop in its shares. The company’s struggles with a slower rebound from a challenging advertising market have raised concerns among investors. However, some analysts remain optimistic about Snap’s future prospects, citing potential recovery trends and the need for alternatives to large advertising companies. CEO Evan Spiegel expressed confidence in the company’s ability to deliver improved performance and increase revenue through enhanced advertiser engagement. As Snap continues to navigate these challenges, its ability to execute effectively and drive growth will be closely monitored by investors and industry observers alike.
