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Snap Plummets

Snap Plummets Over 30% After Missing on Revenue  

Oct 21, 2022 | About 5 Minutes

Ticker Symbol: SNAP, GOOG, META, PINS, TWTR, TTD, ROKU

The parent of the eponymous messaging app Snapchat, Snap Inc, was down over 30% in the morning session today, after the company missed third quarter Wall Street estimates on revenue. The quarterly sales growth was the slowest ever for the young company, reflecting a decline in advertiser fervor as the economy slows down. The company’s shares were last trading at $7.5, 56% below its March 2017 IPO price of $17. Shares are down roughly 84% on a year-to-date basis, underperforming the S&P 500 communications sector which is down 38%.

Other social media and advertising companies, from Meta Platforms and Pinterest to Alphabet and Twitter were also trading down sharply in the morning session. Snap also said in an investor letter that the company’s revenue “continues to be impacted by a number of factors, including platform policy changes, macroeconomics headwinds and increased competition.” The company also said that it has substantially reduced its headcount after announcing that it would cut 20% of its workforce in August.

The company reported revenue that missed the average analyst estimate by approximately 10 million, growing only 5.7% year over year to $1.13 billion. Analysts had already reduced revenue expectations from $1.15 billion to $1.14 billion over the past month.  Adjusted earnings per share was 8¢, slightly beating estimates of a loss of 2¢ per share. The company earned 17¢ in the third quarter of last year. Adjusted earnings before interest, taxes and depreciation came in at $72.6 million, down 58% year over year, versus an estimated EBITDA profit of 24 million.

Critically, the company did report a beat on daily active users, reporting a DAU of 363 million, up 19% from the same period in 2021, and ahead of forecasts of 359 million users. North American daily users were 100 million, growing at 4.2% year-on-year and meeting expectations. Europe averaged 88 million, growing at 10% and slightly ahead of expectations. The rest of the world reported 35% growth to 175 million, well ahead of estimated 171.5 million.

Average revenue per user was down to $3.11 against the $3.49 from last year and below the $3.19 investors had been expecting. North American ARPU was the strongest at $8.13, with European ARPU declining to $1.83 and the rest of the world averaging 89¢.  The company generated free cash flow of $18.1 million during the three-month period, significantly higher than the negative $105 million that Wall Street was expecting.

Snap also said that that board of directors of the company authorized a $500 million stock repurchase program over the following 12 months to offset dilution related to share compensation plans to employees. The company has been facing pressure by advertisers who have cut their marketing budgets in order to control costs as inflation rages across the globe. Some of Snap’s largest customers, such as Disney, Lyft and Adidas have been facing margin pressures of their own.

Furthermore, changes from Apple to its privacy policy has also made ad tracking more difficult for app makers such as Snap and Pinterest, which in turn has driven down the rate these companies can charge advertisers. The company’s Chief Financial Officer also noted that competition had been intensifying in the space recently. TikTok, which became a sensation during the pandemic, has pulled away Snap’s core demographic, while simultaneously increasing its advertising space available for large companies, impacting both Snap’s user growth and advertising dollars.

This content is provided for general information purposes only and is not to be taken as investment advice nor as a recommendation for any security, investment strategy or investment account.