Snap Inc. Faces Market Turmoil as Shares Plummet 30% Amid Revenue Disappointment and Cautious Outlook
Snap Inc. witnessed a substantial 30% decline in its stock value during Wednesday morning trading, following a disappointing fiscal fourth-quarter earnings report that fell short of revenue estimates and provided cautious guidance. The company is grappling with a slower recovery from the challenging advertising market conditions of 2022 compared to industry peers such as Meta.
Challenges in the Advertising Market
Snap is currently grappling with a slower rebound from the adversities of the 2022 advertising market, lagging behind industry counterparts like Meta. The aftermath of a challenging advertising landscape in 2022 seems to be hindering Snap’s recovery, contributing to the company’s struggle to meet market expectations.
Historical Context
This downturn marks one of Snap’s most challenging days on the market since its debut in 2017. Notably, the company experienced its two most substantial one-day declines in May 2022 with a 43% drop and two months later with a 39% plunge. The current 30% decline underscores the severity of the challenges Snap is currently facing.
This downturn marks one of Snap’s most challenging days on the market since its debut in 2017, with its two largest one-day declines occurring in May and July of 2022, with drops of 43% and 39%, respectively.
For the fourth quarter, Snap reported revenue of $1.36 billion, slightly below the $1.38 billion anticipated by analysts from LSEG (formerly known as Refinitiv). The company’s adjusted earnings per share (EPS) stood at 8 cents, surpassing the 6 cents expected by analysts.
This marks Snap’s sixth consecutive quarter of either single-digit growth or sales declines. While the company foresees an uptick in growth in the first quarter, it falls short of analysts’ expectations.
Morgan Stanley analysts maintained an underweight rating for Snap and revised their price target down to $11. They noted that the company’s advertising turnaround was slower than anticipated, and its engagement metrics were weak. Comparatively, they pointed out the robust ad improvements and impression growth at Meta and Amazon, suggesting potential challenges for Snap’s ad revenue.
Snap attributed some of its challenges to external factors, stating in a letter to investors, “While we are encouraged by the progress we are making with our ad platform and the improved results we are delivering for many of our advertising partners, we estimate that the onset of the conflict in the Middle East was a headwind to year-over-year growth of approximately 2 percentage points in Q4.”
Barclays analysts, however, maintained an optimistic outlook, retaining an overweight rating and a $15 price target on Snap’s stock. They acknowledged the mixed results in the fourth quarter but expressed confidence in the acceleration expected in the first quarter, drawing parallels to Meta’s trajectory five quarters ago.
JPMorgan analysts reiterated their underweight rating on Snap shares while increasing the price target from $9 to $11 based on 2025 revenue expectations of around $5.9 billion. 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. The analysts noted that Snap’s shares’ extreme volatility might deter some investors, emphasizing the importance of sustained improved execution by the company.
Conclusion
Snap Inc.’s recent stock plunge underscores the challenges the company is facing in the competitive and evolving landscape of the social media and advertising industry. As Snap navigates through these difficulties, investors and industry observers will be closely monitoring how the company adapts its strategies to reignite growth and regain investor confidence in the coming quarters. The market volatility and contrasting analyst perspectives add an additional layer of uncertainty to Snap’s immediate future.
