Shares of social media company Snap Inc. (NASDAQ: SNAP) tanked 39.1% on July 22, Friday, in reaction to the company’s poor second quarter results. Following Snap’s earnings release, more than ten analysts downgraded the stock.
Snap’s results also dragged down other social media stocks, like Meta Platforms (META) and Pinterest (PINS), due to the growing concerns about a slowdown in online advertising spending.
Forebodingly, Snap did not provide any outlook for the third quarter, citing an uncertain operating environment. This lack of visibility triggered a series of downgrades by Wall Street analysts and also spooked investors. Overall, Snap shares have plunged nearly 79% year-to-date.
Snap’s Q2 Results Reflect Continued Slowdown
Snap’s Q2 2022 revenue grew 13% year-over-year to $1.11 billion, lagging analysts’ expectations of $1.14 billion. The Q2 top-line growth reflected a considerable slowdown compared to 38% in Q1 2022, and 42% in Q4 2021.
Moreover, Snap slipped into an adjusted loss per share of $0.02 in Q2 2022, from earnings per share of $0.10 in the prior-year quarter. Analysts were expecting a loss per share of $0.01.
High inflation, rising interest rates, and geopolitical concerns have impacted the spending capacity of businesses and slowed down the demand for Snap’s online ad platform. Also, Apple’s privacy policy changes have significantly impaired Snap’s ability to effectively target ads. Additionally, rising competition from players like TikTok, has made matters worse for the company.
A Sad Series of Downgrades
Following the print, Snap stock was downgraded by several investment firms, including Evercore ISI, Stifel Nicolaus, Goldman Sachs, J.P. Morgan, Oppenheimer, Wolfe Research, and Morgan Stanley.
Evercore ISI analyst Mark Mahaney downgraded Snap stock to a Hold from Buy, and lowered the price target to $14 from $26. Mahaney expected soft Q2 results but the “the magnitude of the weakness” surprised him.
Mahaney noted that while the management didn’t provide any formal Q3 outlook, it revealed flattish revenue trends for the quarter so far. This, as per the analyst, implies a steeper quarter-over-quarter drop in revenue than what the company faced in the peak pandemic quarter (Q2 2020).
Mahaney remains positive about several long-term aspects, like Daily Active User (DAU) growth, product innovation, and future monetization opportunities. That said, he downgraded the stock due to limited catalysts for the next six months to one year.
Overall, the Street is cautiously optimistic on Snap stock, with a Moderate Buy consensus rating based on 12 Buys, 19 Holds, and three Sells. The average Snap price target of $15.86 implies 59.24% upside potential from current levels.
Conclusion
Snap’s growth rate has decelerated over the last few quarters. Moreover, the management’s commentary on the current trends and the expected decline in ad spending due to the ongoing macro challenges, have further impacted investors’ sentiment for Snap stock.
Currently, as per the TipRanks Smart Score System, Snap scores a one out of 10, indicating that the stock is likely to underperform the broader market.
