Snap shares plunge after losing second-quarter earnings

Snap Inc. shares fell. by 38% during Friday’s trading session after the social media giant reported disappointing second-quarter earnings results.

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Explode, Explode SNAP INC. 9.95 -6.42 -39.22%

Snap reported a net loss of $422 million, or an adjusted loss of two cents per share, on revenue of $1.11 billion. Economists polled by Refinitiv expected a 1 percent loss per share in revenue of $1.14 billion.

The results are attributed to various factors, including tough economic conditions, slowing demand for its online advertising platform, Apple’s iOS privacy changes and competition from competitors like TikTok.

Snap’s daily active users grew 18% year-over-year to 347 million, including 99 million in North America, 86 million in Europe, and 168 million in the Rest of the World region.

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The Snapchat logo is displayed on the phone screen in this illustration in Poland on November 29, 2020. (Image illustration by Jakub Porzycki/NurPhoto via Getty Images/Getty Images)

Snap declined to provide financial guidance, citing a “very challenging” outlook. It expects a total of 360 million daily active users in the third quarter and said its quarterly revenue to date is roughly flat year over year.

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Going forward, Snap’s chief financial officer Derek Anderson said the company will “significantly slow” the hiring rate, “effectively halt” employee growth and reduce the growth of non-employee operating expenses. The company also said it will continue to invest heavily in its platform, products and direct response advertising business in order to “build an equal or better cash flow path.”

Snapchat logo

Snap Inc. shares fell. by 38% during Friday’s trading session after the social media giant reported disappointing second-quarter earnings results. (iStock / iStock)

Oppenheimer analyst Jason Helvestein told clients in a note Thursday that Snap “now faces a lot of headwinds for investors to underwrite stocks in the medium term” before they even take into account consumer spending. The company downgraded Snap’s stock from “outstanding” to “performing” and removed its 12-month target price of $22 per share.

Helfstein told FOX Business that he expects Snap will focus on lasers to improve the tools that will attract advertisers to its platform. He believes the company could benefit from joining forces with a “bigger company”.

“I think if they are part of a larger company, that will probably give them the ability to invest more aggressively in the tool they need for advertisers, while at the same time building all kinds of new and interesting products,” he explains.

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Despite Snap’s struggles, Helfstein believes the majority of its problems are company-specific.

“I would expect every company to say they are concerned about the future of advertising, and they are watching carefully what happens with consumer spending,” he added.

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Goldman Sachs, which lowered Snap’s rating from “buy” to “neutral” and lowered its 12-month target price from $25 to $12 per share, expects the stock to be “range-bound in the short/medium term” as investors digest the “new normal.” for lower revenue growth, improved hiring cadence, and low/lack of visibility in terms of improved operational performance.”

CFRA Research, which maintains its firm rating on Snap stock, believes the company “remains in a better position than most” to monetize its platform in the long-term, citing “healthy user engagement levels, a proven attractive base/young audience, and efforts in [augmented reality]. ”

As of press time, Snap’s stock is down more than 78% since the beginning of the year.

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