Snap Nosedives on Weak Outlook Amid Uncertain Economy

Shares of the American camera and social media company Snap Inc. (NYSE: SNAP) plummeted 31% in the extended trading session on Monday. The ripple effect on the stock followed Snap CEO Evan Spiegel’s warnings about the deteriorating economy and subsequent weaker outlook for the June quarter, per the company’s filings.

The company plans to slow down the hiring process and look for more cost-savings measures for the rest of the year.

Spiegel commented, “Well, the macroeconomic environment has definitely deteriorated further and faster than we expected when we issued our guidance for the second quarter. So even though our revenue continues to grow year-over-year in the second quarter, it’s likely that revenue and EBITDA will come in below the low end of our guidance range.”

Snap’s warnings influenced the stock prices of its competitors. After-hours, Meta Platforms (FB) lost 7.1%, Alphabet (GOOGL) declined 3.6%, and Twitter (TWTR) sank 3.7%.

Earnings Snapshot and Q2 Expectations

Last month, for the first quarter of 2022, Snap posted revenue of $1.06 billion, up 38% year-over-year, but missed the consensus estimate of $1.07 billion. Additionally, an adjusted loss of $0.02 per share was recorded, compared with the Street’s estimated earnings of $0.01 per share. Yet, Snap’s Q1 daily active users (DAUs) stood at 332 million, jumping 18% year-over-year.

For Q2 2022, the company expects revenue growth of 20% to 25%. Meanwhile, adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) are expected to range between breakeven and $50 million.

Global Concerns

The market is experiencing a huge sell-off due to the negative impact of rising inflation, interest rate hikes, and supply-chain challenges. Further, the war in Ukraine has aggravated the situation. A prolonged deterioration in the macroeconomic environment can be challenging, and therefore, companies are resorting to cost-cut measures to remain profitable.

Wall Street’s Take

Following the company’s outlook update, JMP Securities analyst Andrew Boone maintained a Buy rating on the stock but decreased the price target to $45 (100.27% upside potential) from $50 based on his reduced estimates.

Boone said, “While we acknowledge that the advertising environment is worsening and we have no clear view that this is the bottom, we view the selloff in shares as an opportunity for long-term investors as Snap is a must-buy platform for advertisers…”

Consensus among analysts is a Strong Buy based on 20 Buys and five Holds. The average Snap price target of $47.88 implies 113.08% upside potential from current levels. However, shares have lost 62.62% over the past year.

Bottom-Line

Though Snap’s current financials seem challenging, investors buying the dips could consider the stock for long-term gains.

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