Shares of Snap Inc. fell 38% during Friday’s trading session after the social media giant reported disappointing second-quarter earnings results.
Snap posted a net loss of $422 million or an adjusted loss of 2 cents per share on revenue of $1.11 billion. Economists polled by Refinitiv had expected a loss of 1 cent per share on revenue of $1.14 billion.
The results were attributed to various factors, including difficult economic conditions, slowing demand for the online advertising platform, Apple’s changes to iOS privacy, and competition from competitors like TikTok.
Snap’s daily active users grew 18% year-on-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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Snap declined to provide financial projections, citing “incredibly difficult” projections. The company expects a total of 360 million daily active users in the third quarter and said its quarterly revenue so far is roughly flat from last year.
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Going forward, Snap CFO Derek Anderson said the company will “substantially reduce” hiring levels, “virtually halt” headcount growth and cut growth in non-personnel operating expenses. The company also said it will continue to invest heavily in its direct-response platform, products and advertising business to “pave the way to free cash flow break-even or higher.”
Oppenheimer analyst Jason Helfstein told clients in a note Thursday that Snap “is facing too many headwinds right now for investors to hedge the stock over the medium term,” without even factoring in consumer spending. The firm downgraded Snap’s stock rating from “best” to “excellent” and removed its 12-month price target of $22 per share.
Helfstein told FOX Business that he expects Snap to focus on improving the tools that will bring advertisers to its platform. He believes the company could benefit from joining forces with “bigger business.”
“I think if they were part of a bigger business, it would give them the opportunity to probably more aggressively invest in the tool that they need for advertisers and at the same time create all sorts of new exciting products,” he explained. .
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Despite Snap’s difficulties, Helfstein believes that most of the problems are related to the company.
“I expect every company to say that they are concerned about the prospects for advertising and are closely watching what happens to consumer spending,” he added.
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Goldman Sachs, which downgraded Snap from Buy to Neutral and cut its 12-month price target from $25 to $12 per share, expects the stock to be “range-limited in the short/medium term” as investors digest “new normal levels of subdued revenue growth, streamlined hiring schedules, and little/no visibility of operational efficiency improvement.”
CFRA Research, which maintains its stock retention rating for Snap, believes the company is “still in a better position than most” to monetize its platform in the long term, citing “healthy levels of user engagement, attractive installed base/young audience and efforts in [augmented reality].”
At press time, Snap shares are down over 78% year-to-date.
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