Market News

Snap Shares Drop 27%. Here’s Why.

Story Highlights

Snap’s shares snapped amid another quarter of losses for the company. However, revenue growth from the year-ago quarter and active user growth should provide some support.

Social media company Snap Inc. (NYSE: SNAP) posted mixed results for the second quarter June 30, 2022. Though the company reported lower-than-expected losses, the top-line numbers missed the consensus estimate.

The mixed results did not enthuse the investors much as shares of the company nosedived 26.8% to close at $11.97 in yesterday’s extended trade.

Earnings Numbers at a Glance

Snap reported quarterly revenues of $1.11 billion, up 13% from the previous year. Year-over-year growth of 12% in revenues from North America and Europe were the primary drivers of the overall growth in revenues for the company. However, the figure failed to surpass the consensus estimate of $1.14 billion.

The company reported a loss per share of $0.02, which compares unfavorably to earnings per share (EPS) of $0.10 reported in the previous year. Yet, the figure came in lower than the consensus estimate of a loss of $0.20 per share.

Performance of Other Key Operating Metrics

Snap’s daily active users (DAUs) increased by 18% from the previous year to 347 million. The figure also came in higher than the consensus estimate of 344.2 million.

However, adjusted EBITDA declined by a huge 94% from the prior year to $7.1 million.

In terms of cash flow too, the company’s results were not encouraging. The company reported a free cash outflow of $147.4 million compared to $115.7 million in the prior year.

The Company Goes for a Share Buyback

Snap announced that its Board of Directors has authorized a stock repurchase program of up to $500 million of its Class A common stock. The repurchase will be funded from the company’s cash and cash equivalents, restricted cash, and marketable securities balance of $4.9 billion, as of June 30, 2022.

Management’s Commentary

CEO of Snap, Evan Spiegel said, “While the continued growth of our community increases the long-term opportunity for our business, our financial results for Q2 do not reflect our ambition. We are evolving our business and strategy to reaccelerate revenue growth, including innovating on our products, investing heavily in our direct response advertising business, and cultivating new sources of revenue to help diversify our topline growth.”

Wall Street’s Take

Overall, the Wall Street community is cautiously optimistic about the stock with a Moderate Buy consensus rating based on 25 Buys, six Holds, and two Sells. The SNAP average price target of $24.97 implies the stock has upside potential of 52.7% from current levels. Shares have declined 74% over the past year.

Investors Remain Upbeat About Snap Stock

TipRanks’ Stock Investors tool shows that top investors currently have a Very Positive stance on SNAP. Further, 35.3% of the top portfolios tracked by TipRanks, increased their exposure to SNAP stock over the past 30 days.

Key Takeaways

Snap’s results for the second quarter gave mixed signals. The company’s revenue and DAUs both witnessed impressive growth from the previous year amid economic headwinds.

However, the company’s bottom line continues to bleed. Further, free cash outflow remains a concern for the company.

Meanwhile, the company’s share buyback announcement can be expected to provide some support to its stock price, which has been on a downward spiral over the past year.

Read full Disclosure

Tired of arriving late to the Big Returns Party?​
Most investors don’t have major gainers like TSLA or NVDA on their radar from the start.
The profusion of opinions on social media and financial blogs makes it impossible to distinguish between real growth potential and pure hype.
​​For the past decade, we have developed and perfected technology designed to help private investors, just like you, find the best opportunities, with the greatest upside potential, in any financial climate.​
Learn More