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Snap Plummets Over 34% After Suspending Forward Guidance

Jul 22, 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 34% in the morning session today after the company missed its second-quarter earnings Wall Street estimates on revenue and profit. Management also promised to limit hiring as the company deals with the fallout from surging inflation. The company’s shares were last trading at $10.70, 37% below its March 2017 IPO price of $17. Shares are down roughly 77% on a year-to-date basis, underperforming the S&P 500 communications sector which is down 28%.

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 is “not satisfied with the results we are delivering, regardless of the current headwinds.” The company also said that it has substantially reduced the rate of hiring and will focus on cost containment strategies. A sharp pullback by advertisers and a fight for dwindling marketing dollars were reasons for the poor results. 

The company reported revenue that missed the average analyst estimate by approximately 25 million, growing only 13% year over year to $1.11 billion. Analysts had already reduced revenue expectations from $1.2 billion to $1.14 billion over the past month.  Adjusted loss per share was 2¢, slightly beating estimates of a loss of 4.6¢ per share. Adjusted earnings before interest, taxes, and depreciation came in at $7.2 million versus an estimated loss of $1.23 million.

Critically, the company did report a beat on daily active users, reporting a DAU of 347 million, up 18% from the same period in 2021, and ahead of forecasts of 343 million users. North American daily users were 99 million, Europe averaged 86 million, and the rest of the world reported a 35% growth to 162 million. The average revenue per user was down to $3.20 against the $3.37 from last year. The company also burned through cash faster than anticipated, reporting a negative free cash flow of $147.5 million, behind analysts’ expectations of negative $52 million.

Snap also said that the 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. Additionally, management said that revenue was flat relative to 2021 thus far in the third quarter. Analysts had been expecting revenue growth of 5.5% before earnings were released.

The company has been facing pressure from advertisers who have cut their marketing budgets 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 have 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.

The macroeconomic turmoil Snap is facing is leading to a rout in the broader technology and communications sector. Alphabet shares are off 3%, Pinterest is down 11%, Meta by 6%, The Trade Desk by 6%, and Roku is also down 6%. Twitter is likewise down 1% after reporting its second-quarter earnings that missed analyst estimates on both the top and bottom lines. Across the social media and advertising sectors, over $75 billion in market value has been lost on the back of the commentary provided by Snap.

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.