Snap Crashes 30% on Soft Q2 Results, No Guidance and at Least Nine Downgrades
2022.07.22 13:41
Snap Crashes 30% on Soft Q2 Results, No Guidance and at Least Nine Downgrades
By Senad Karaahmetovic
Shares of Snap (NYSE:SNAP) are down almost 30% in premarket trading Friday after the company reported Q2 2022 financial results and announced plans to slow hiring.
Snap reported an adjusted loss per share of 2 cents, compared to the estimated loss per share of 1 cent. Revenue came in at $1.11 billion in the quarter, below the consensus estimates of $1.14 billion. Revenue grew 13% from the year-ago period, compared to analysts’ expectations of 16% growth.
The number of Global Daily Active Users (DAUs) was reported at 347 million, while analysts were looking for 344.2 million. The social media company said it would not offer guidance for the third quarter as the “forward-looking visibility remains incredibly challenging.”
“We are not satisfied with the results we are delivering, regardless of the current headwinds,” the company said in the letter.
Snap failed to meet analyst estimates even after it cut guidance for Q2.
“The second quarter of 2022 proved more challenging than we expected,” Snap said.
As a result, the company plans to “substantially slow our rate of hiring, as well as the rate of operating expense growth.”
Snap said weaker-than-expected second-quarter earnings were due to slower demand for its online ad services. Furthermore, a deteriorating economy, Apple’s privacy changes, and higher competition from the likes of TikTok also weighed on markets’ spending and the company’s results.
At least nine Snap analysts cut their ratings on the stock following disappointing results. An Oppenheimer analyst cut the rating from Outperform to Perform.
“SNAP is now facing too many headwinds for investors to underwrite stock in the medium-term—TikTok, SKAdnetwork 4.0 & rise of Retail Media Networks —before we factor in slower consumer spending in 4Q and 1H:23. As such, we now estimate ’22 and ’23 revenue growing 8% & 10%, resp., putting stock at 3.8x ’23E rev. vs. peers at 4.3x. In addition, we have lowered our ’25E EBITDA margin to 14% from 25%, which implies stock currently discounting 28x ’25E EBITDA. 3Q revenue trending flat y/y vs. +13% in 2Q and +38% in 1Q, and will likely be down y/y in 4Q. Investors need clarity on full-rollout of SKAdnetwork 4.0 and opex plan,” the analyst told clients in a note.
Similarly, an analyst from JPMorgan double downgraded SNAP stock to Underweight from Overweight with a $9 per share price target.
“Snap’s reported growth of +13% showed greater deterioration than expected. 3QTD is trending around flat Y/Y (which could mean down Q/Q). In not providing guidance for 3Q, Snap suggested that forward visibility remains very challenging… Additionally, while Snap will not call out TikTok specifically, we believe TikTok’s strong engagement & rapid monetization growth (eMarketer estimates ~$12B in 2022 revenue) are having an outsized impact on Snap’s business,” the analyst wrote in a client note.
