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Instant stock crashes again - 3 big problems still lurk: Analyst

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Losing stock price for Snap continues after a tough quarter.

Shares of the social media platform fell 25% in premarket trading on Friday, marking the fifth consecutive quarterly slowdown in third-quarter sales. Profits were also lackluster as Snap continued to blame an advertising slowdown for missteps in execution and Apple privacy changes.

Here’s a snapshot of Snap’s dismal numbers:

  • Net sales: $1.13 billion to $1.14 billion forecast

  • Daily Active Users: 358 million estimates versus 363 million

  • Average revenue per user: $3.11 vs $3.17 estimate

  • Adjusted EPS: Estimated loss of $0.08 and $0.02

  • Guidance: “Straight” revenue growth seen in fourth quarter

The company warned that sales trends in the fourth quarter will worsen.

Snap shares topped the Yahoo Finance ‘Trend Ticker’ page in the early morning hours.

EvercoreISI analyst Mark Mahaney said Snap’s third-quarter results surprised them negatively. “We assumed Snap’s August improvement, announced in early September, would apply to the quarter. Instead, Snap’s revenue trends were highly volatile year-over-year in July, with mid-tens percent growth and low singularity year-over-year in August. year-over-year growth in percent…Even with the conveniences stemming from the Platform Policy Changes that started at the beginning of Q3:21.”

“And we think the recent major staff changes at SNAP – the loss of key ad execution to Netflix – are likely to worsen the headwinds,” Mahaney said.

POLAND – 09/2022/02: This photo shows a Snapchat logo displayed on a smartphone. (Photo Illustration by Mateusz Slodkowski/SOPA Images/LightRocket via Getty Images)

analyst spotlight

Jefferies analyst Brent Thill sees three issues with the stock. Sticking to a Buy rating on Snap after a disastrous third quarter. But the longtime tech analyst sees three issues ahead that cannot be priced in at Snap’s hugely discounted share price:

  • “Q4 rev guidance means a significant growth slowdown. Although Snap has seen revenue growth increase to +9% year-on-year to date, management still only forecasts Q4 year-over-year growth. Weakness in brand advertising seems to be the main source of steep slowdown, but we think entrenched conservatism may also be. In our view, 1Q’23 could be the bottom of revenue growth with gradual acceleration to 2023, loosening comparisons.

  • It’s hard to tell how many of the Snap issues are temporary. Weakening macro ground is partly responsible for the poor results, but we question how much of this is due to iOS privacy issues and competitive threats. We see competitive threats as the most relevant given the potential long-term implications for the platform.

  • 20% staff cuts and executive departures could cause further disruption. We’re concerned that Snap’s reorganization could cause advertisers to slow or even pause their spending. Given that Snap’s headcount grew by over 30% year-over-year for 4 quarters, we wonder if the company can meet its high growth targets with a 20% smaller employee base.”

In Numbers: Snap’s stock price

  • All-Time High: $83.11 (September 24, 2021)

  • YTD Performance: -83%

  • 1 Year Performance: -89

  • Public Offering Price (March 2017): 17 dollars

  • Price After First Trading Day (March 2017): $24.50

Brian Sozzi He is a great editor and Works at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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