Snap Stock Plummets 38.89% Upon Weak Q2 Earnings – Is Now Time to Sell, Hold or Invest in Snapchat

Banner on the New York Stock Exchange marking the Initial Public Offering of Snap Inc.
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Snap shares were down 38.89% on July 22, following disappointing second-quarter earnings – a quarter which “proved more challenging than we expected,” according to a July 21 letter to investors.

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“While the continued growth of our community increases the long-term opportunity for our business, our financial results for Q2 do not reflect our ambition,” Evan Spiegel, Snap CEO, said in the earnings release. “We are evolving our business and strategy to reaccelerate revenue growth, including innovating on our products, investing heavily in our direct response advertising business, and cultivating new sources of revenue to help diversify our topline growth.”

Snap shares closed up 5% on July 21, but tumbled more than 26% in after-hours trading on the results, according to The Wall Street Journal. The stock is down 64.9% year-to-date.

Following the earnings release, CFRA Research said it maintained a Hold opinion on the stock and reduced the 12-month price target on the shares to $15 from $18.

Angelo Zino, senior equity analyst at CFRA Research, wrote in a note sent to GOBankingRates that “we are growing more concerned about business prospects given macro issues and rising competitive pressures, which is hurting advertiser budgets and creating lower bids per action.”

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“While the growth trajectory for ad spend across the social media space has come to a halt, we believe SNAP remains better positioned than most to monetize the platform long term given healthy user engagement levels, an attractive installed base/young audience, and efforts in AR,” Zino wrote.

The company also said that it won’t provide financial guidance for the third quarter, as “forward-looking visibility remains incredibly challenging, and it is unclear how the headwinds we observed in Q2 will evolve as we move through Q3,” according to the shareholders’ letter.

Scott Kessler, Global Sector Lead for Technology Media and Telecommunications at Third Bridge, said that not providing guidance was also of significance, as it makes sense for Snap to be overly conservative, especially given investor sentiment around the company.

“Snap’s second-quarter results were disappointing, in large part because they missed expectations even after negatively pre-announcing. This indicates not only challenges in terms of demand, but also in forecasting demand. Revenues rose only 13%. In the first quarter they surged 38%,” Kessler said in a note sent to GOBankingRates. “Times are tough for Snap and it remains to be seen if competitors and peers are seeing similar things. Experts we’ve spoken with have told us that Snap’s focus and reliance on larger brand advertisers have made it more vulnerable to related budget cut-backs.”

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Snap also said that it intends to “substantially” slow its rate of hiring, as well as the rate of operating expense growth and reprioritize its investments.

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The missed earnings drove Wedbush Securities analyst Dan Ives to deem the quarter “another train wreck,” which highlights a digital ad slowdown, Apple iOS privacy headwinds and TikTok competition further heating up, according to a note sent to GOBankingRates:

“In a shaky macro there will be many casualties as a slower spending environment is on the horizon with darker storm clouds. That said, we view SNAP as a paper airplane in a windstorm and is not a phenomenal barometer for the pace of the digital ad slowdown for platforms like Facebook/Meta, Google, and other digital ad players.”

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About the Author

Yaël Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.

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