Snap is pursuing Growth amid Stock Decline and Strategic Shifts
- Snap Inc. experiences a significant decline in stock value, dropping by 35% following disappointing fiscal fourth-quarter earnings.
- The company faces challenges in rebounding from a tough 2022 advertising market compared to competitors like Meta, leading to investor concerns.
- Financially, Snap reports revenue slightly below expectations but exceeds anticipated adjusted earnings per share.
- Analysts offer mixed perspectives, with some maintaining optimism for recovery while others emphasize the need for stronger engagement and ad platform growth.
- Snap’s CEO expresses confidence in improved advertiser performance and discusses strategic workforce reductions to enhance execution.
Snap Inc. experienced a significant decline in its stock value, plummeting by 35% during Wednesday morning trading, following a disappointing fiscal fourth-quarter earnings report. The company’s struggles in rebounding from a challenging 2022 advertising market, especially when compared to competitors like Meta, have raised concerns among investors. This decline represents one of Snap’s most challenging days in the market since its debut in 2017, with previous notable drops of 43% and 39% in May and July 2022 respectively.
Financially, Snap reported revenue of $1.36 billion for the quarter, slightly below analysts’ expectations of $1.38 billion. Despite this, the company exceeded anticipated adjusted earnings per share (EPS) by reporting 8 cents compared to the expected 6 cents. However, this marks Snap’s sixth consecutive quarter of either minimal growth or sales decline. Although the company projected potential growth acceleration in the first quarter, analysts remain cautious about the pace of recovery.
Analysts at Morgan Stanley maintained an underweight rating for Snap, lowering their price target to $11, citing concerns about the company’s slower-than-expected advertising turnaround and weak engagement metrics. They highlighted strong ad improvements and impression growth at Meta and Amazon as potential challenges to Snap’s ad revenue.
In contrast, Barclays analysts remained optimistic, maintaining an overweight rating and a $15 price target on Snap’s stock. They emphasized the potential for recovery, likening Snap’s current situation to Meta’s trajectory five quarters ago. Meanwhile, JPMorgan analysts reiterated an underweight rating but adjusted their price target to $11, stressing the importance of stronger growth in engagement and the ad platform.
During an interview on CNBC’s “Money Movers,” Snap’s CEO, Evan Spiegel, expressed confidence in the company’s trajectory, citing improved advertiser performance as a potential driver for increased revenue. Spiegel highlighted Snap’s efforts to provide an alternative to larger tech advertising companies, emphasizing the importance of performance to diversify advertising spend.
In response to questions about Snap’s recent decision to reduce its global workforce by around 10%, or approximately 500 employees, Spiegel stated that the cuts aim to streamline operations and enhance execution by removing management layers, allowing the company to “move faster.”
In a separate development, Snap’s stock witnessed further decline in late trading after the company fell short on revenue and offered weak guidance for the upcoming quarter. For the quarter ending December 31, Snap reported adjusted earnings per share of eight cents on revenue of $1.361 billion, slightly below expectations. The company reported 414 million daily active users, exceeding expectations, but with a lower average revenue per user than anticipated.
Despite these challenges, Snap highlighted positive developments, including significant growth in time spent watching Spotlight and an increase in Snapchat+ users. The company’s CEO, Evan Spiegel, emphasized the unique value proposition of Snapchat in enhancing relationships, providing a strong foundation for long-term growth.
Looking ahead, Snap expects revenue of $1.095 billion to $1.135 billion for the fiscal first quarter of 2024, with approximately 420 million daily active users. The company attributed some weakness in its performance to the conflict in the Middle East, impacting year-over-year growth in the fourth quarter.
The recent earnings report comes amid Snap’s announcement of plans to reorganize its workforce, aiming to reduce hierarchy and promote in-person collaboration. These developments underscore Snap’s ongoing efforts to navigate challenges in the advertising market and position itself for sustainable growth in the long term.