Snap (NASDAQ:SNAP) snapped its winning streak of the past month and plunged more than 14% in pre-market trading on Wednesday after its Q4 revenues stayed flat year-over-year and missed analysts’ estimates.
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The social media giant’s lack of growth when it comes to its Q4 revenues was due to the rapid decline in the growth of digital advertising. A slowdown in the economy has led to many companies slashing their digital advertising budgets and Apple’s (AAPL) iOS privacy update has only exacerbated SNAP’s woes as it has limited the company’s targeted ad capabilities.
SNAP’s management stated on its Q4 earnings call that it had updated and improved its advertising platform over the past year across three key areas. This includes improving user engagement and conversion, “investing in observability and measurement” and driving up the volume of high-quality user engagements.
But Evan Spiegel, Snap’s CEO pointed out, “In the very near term, it will take time for these improvements to translate into improved top-line growth. “
However, while the company’s revenues stagnate, its user metrics improved in Q4. The company’s subscription service, Snapchat+ debuted last year and had 2 million paid subscribers at the end of the fourth quarter. Global daily active users (DAUs) came in at 375 million, up by 17% year-over-year. Furthermore, average revenue per user (ARPU) declined by 15% year-over-year to $3.47.
While SNAP did not provide guidance for the third straight quarter, it did state in its letter to shareholders that its “internal forecast” has projected its revenues to decline in the range of 10% to 2% year-over-year in Q1 and expects to breakeven on an adjusted EBITDA basis. DAUs are anticipated to come in between 382 million and 384 million in Q1. The company stated that it expects “the operating environment will remain challenging” in Q1 when it comes to user monetization.
Considering this bearish outlook, while Truist’s top-rated analyst Youssef Squali remained sidelined on the stock with a Hold rating, he lowered the price target to $8 from $10. The analyst’s price target is the lowest on the Street and implies a downside potential of 30.8% at current levels. Squali commented that while macro headwinds are likely to impact the social media industry as a whole, SNAP could be more affected “given its smaller size.”
Overall, Wall Street analysts still remain cautiously optimistic about SNAP stock with a Moderate Buy consensus rating based on three Buys and six Holds.
