A warning on ad spending, and a grim near-term outlook, as Snap and other social media shares trading sharply lower Friday.
Snap Inc. (SNAP) – Get Snap Inc. Class A Report shares plunged lower Friday after the messaging app warned investors that its holiday quarter would see little to no revenue growth amid a pullback in global add spending.
Snap said revenue for the three months ending in September were up 6% from last year at $1.13 billion, but marked the slowest rate of growth since the company went public in 2017.
Daily active users were up 19% to 363 million, Snap said, but total watch time by U.S. users of the Snapchat messaging app fell 5% from last year amid increasing competition for screen time from the likes of China-based ByteDance, the owner of the popular TikTok app.
Adjusted profits of 8 cents per share beat Street forecasts, but the current quarter outlook sent shares tumbling, and rippled through the social media space, hiving more than $40 billion in market value from rivals such as Twitter (TWTR) – Get Twitter Inc. Report, Pinterest (PINS) – Get Pinterest Inc. Class A Report and Meta Platforms (META) – Get Meta Platforms Inc. Report.
“While our business continued to face significant headwinds this quarter, we took action to further focus our business on our three strategic priorities of growing our community and deepening their engagement with our products, reaccelerating and diversifying our revenue growth, and investing in augmented reality,” CEO Evan Spiegel told investors on a conference call late Thursday.
“We believe that we can be successful in this new operating environment, but we must rigorously prioritize our investments and continue to delight our community with our products while driving success for our advertising partners,” he added.
Snap shares were marked 25.2% lower in pre-market trading to indicate an opening bell price of $8.07 each, a move that would extend the stock’s year-to-date decline to around 83%.
“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 the first quarter of next year, 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,” said JMP Securities analyst Andrew Boone, who carries a ‘market outperform’ rating with a $10 price target on the stock
“This as we continue to believe there is significant value in Snap’s AR platform (though this is likely to be more of a material driver in a few years),” he added, calling the overnight slide in the stock “an opportunity, especially for long-term holders, as we believe growth rates can rebound to 20%+ levels as Snap gets to a more stabilized environment across competition, macro, and operations.”