Snap Inc (NYSE:SNAP) shares traded lower by 30% on Friday after the company disappointed Wall Street with its third-quarter numbers.
On Thursday, Snap reported third-quarter adjusted EPS of 8 cents, beating analyst estimates of a break-even quarter. Snap's $1.13 billion in revenue for the quarter fell short of consensus expectations of $1.14 billion. Revenue was up 6% from a year ago.
Snap reported 363 million Global Daily Active Users (DAUs), beating analyst estimates of 358.2 million. Snap did not provide official guidance for the fourth quarter but said revenue growth will likely continue to decelerate.
Snap also authorized a new $500-million stock repurchase program.
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Snap's Execution Risk: Morgan Stanley analyst Brian Nowak said the bear case may be playing out for Snap.
"We are also concerned about the high execution risk ahead for this ad platform still going through management transition (with two key hires in N. America and APAC not yet made and/or announced) and a potential sales reorganization/restructuring to come in '23," Nowak wrote.
Bank of America analyst Justin Post said time spent on Snap content per U.S. user was down 9%, a troubling trend for investors.
"Our thesis that topline could reaccelerate in 4Q as measurement tech improved, IDFA comps eased, and Spotlight ads ramp does not seem likely to happen in the current environment," Post wrote.
RBC Capital Markets analyst Brad Erickson said investors unfortunately got more of the same bad news from Snap in the third quarter.
"We remain sidelined as we've not seen evidence the platform can drive differentiated conversion and compel incremental dollars," Erickson wrote.
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Snap's Impressive Engagement: JMP analyst Andrew Boone said competition and privacy headwinds continue, but Snap's engagement remains impressive.
"While we acknowledge revenue volatility likely continues as Snap is facing increased competition, macro is impacting results, and ahead of a restructuring of the sales force in 1Q23, the company continues to reach 90%+ of 13- to 24-year-olds in 20+ countries and remains one of the few scaled platforms where advertisers can influence young audiences," Boone wrote.
Raymond James analyst Aaron Kessler said Snap is facing "meaningful competition from TikTok," which has a particularly strong market penetration among Snap's younger user base.
"Recent cost-cutting measures should being to help drive stronger margin leverage though Snap’s growth outlook remains highly uncertain near-term, and we would like to see lower SBC as well," Kessler wrote.
Limited Visibility On Snap: Rosenblatt Securities analyst Barton Crockett said Snap's direct response advertising model is proving to be very volatile, limiting visibility.
"Snap is volatile, but its quick retreat to flat-line or worse is a cautionary macro indicator for peers to follow with earnings reports next week," Crockett wrote.
KeyBanc analyst Justin Patterson said investors must determine how much of Snap's bad quarter was company-specific and how much of it was merely a reflection of a difficult macroeconomic environment.
"Our sense is these issues are intertwined, as efforts to organize the sales force and improve AdTech can often exacerbate trends amid a downturn," Patterson said.
SNAP Ratings, Price Targets:
- Morgan Stanley has an Underweight rating and lowered the price target from $10 to $7.
- Bank of America has a Neutral rating and cut the price target from $22 to $11.
- RBC Capital Markets has a Sector Perform rating and lowered the price target from $11 to $8.
- JMP has a Market Outperform rating and $10 price target.
- Raymond James has a Market Perform rating.
- Rosenblatt Securities has a Neutral rating and cut the price target from $13 to $8.
- KeyBanc has a Sector Weight rating.
