Snap Inc. experienced a precipitous drop in its stock value, plummeting 35% in Wednesday morning trading following the release of its fiscal fourth-quarter earnings report. The social media company not only missed revenue expectations but also provided a less-than-optimistic financial outlook, exacerbating investor concerns over the company's recovery pace from a challenging advertising market in 2022.
The company reported quarterly revenue of $1.36 billion, falling short of the anticipated $1.38 billion. This shortfall marks Snap's continuation of single-digit growth or revenue declines for the sixth consecutive quarter. Despite an adjusted EPS of 8 cents surpassing the expected 6 cents, the company's forecast indicated a slower growth acceleration than analysts had hoped for.
Snap's financial struggles have led to significant market reactions, with the company's stock facing one of its worst days since its 2017 debut. This recent downturn is reminiscent of previous sharp declines, including a 43% drop in May 2022 and a 39% fall two months later.
In response to the earnings report, analysts at Morgan Stanley maintained their underweight rating on Snap, citing a slower-than-expected advertising turnaround and weak user engagement. The firm lowered its price target for Snap to $11, noting potential challenges posed by stronger advertising improvements seen in competitors like Meta and Amazon.
Snap attributed part of its Q4 growth headwinds to the conflict in the Middle East, estimating a 2 percentage point impact on year-over-year growth. Despite these challenges, some analysts remain optimistic. Barclays, for instance, retained an overweight rating and a $15 price target on Snap's stock, suggesting that buying the dip could be a prudent move.
However, JPMorgan analysts reiterated their underweight stance while slightly raising their price target from $9 to $11 based on future revenue projections. They emphasized the need for Snap to demonstrate stronger growth in user engagement and advertising platform performance.
Snap CEO Evan Spiegel, in a CNBC interview, expressed confidence in the company's advertising platform improvements and the potential for increased revenue as advertiser performance improves. Spiegel highlighted Snap's appeal as an alternative to larger Big Tech advertising firms, stressing the company's investments in direct response advertising.
Moreover, Snap's recent decision to reduce its global workforce by approximately 10% aims to streamline operations and enhance execution by eliminating management layers, as per Spiegel.
Despite these measures and reassurances, investor sentiment remains cautious, with Snap's stock continuing to face downward pressure. The company's ongoing challenges in the highly competitive social media and advertising landscapes, compounded by broader market uncertainties, have led to growing skepticism about Snap's ability to achieve a sustainable turnaround and long-term profitability.
