Snap stock is crashing again — 3 big problems still lurk: Analyst

The disappearing stock price for Snap continues after another challenging quarter.

Shares of the social media platform crashed 25% in pre-market trading on Friday as third quarter sales marked the fifth straight quarterly deceleration. Profits were also lackluster as Snap continued to blame an advertising slowdown and Apple privacy changes for the execution missteps.

Here’s a snapshot of Snap’s dismal numbers:

• Net Sales: $1.13 billion vs. $1.14 billion estimate

• Daily Active Users: 363 million vs. 358 million estimate

• Average Revenue Per User: $3.11 vs. $3.17 estimate

• Adjusted EPS: $0.08 vs. estimated loss of $0.02

• Guidance: “Flat” revenue growth seen in the fourth quarter

The company warned sales trends in the fourth quarter would get worse.

Snap shares were tops on the Yahoo Finance ‘Trending Ticker’ page through early morning.

EvercoreISI analyst Mark Mahaney said Snap’s Q3 results negatively surprised them. “We had assumed that the August improvement Snap disclosed in early September would hold for the quarter. Instead, Snap’s revenue trends were a very volatile 0% year over year in July, mid-teens % growth year over year in August, and low single-digit % growth year over year in September…even with comps easing from the Platform Policy Changes, which began in early Q3:21,” he said.

“And we think it likely that the recent major personnel changes at SNAP – the loss of key ad execs to Netflix – has exacerbated the headwinds,” Mahaney added.

Analyst spotlight

Jefferies analyst Brent Thill sees three problems with the stock. He’s sticking with a Buy rating on Snap in the wake of the disastrous third quarter. But the long-time tech analyst sees three problems ahead that may still not be priced into Snap’s deeply discounted stock price:

• “Q4 rev guidance implies significant growth deceleration. While Snap has seen its revenue growth accelerate to +9% year over year quarter to date, management is still only forecasting flat year over year growth for Q4. Weakness in brand advertising appears to be the main source of the steep deceleration, but we think there could also be conservatism embedded. In our view, Q1’23 may be the bottom for revenue growth, with gradual acceleration through 2023 on easing comparisons.

• It’s difficult to parse out how many of Snap’s issues are transitory. The weakening macro backdrop is partially to blame for soft results, but we question how much is due to the iOS privacy issues and competitive threats. We view the competitive threats as most concerning given the potential long-term implications for the platform.

• 20% headcount reductions and executive departures could cause further disruptions. We worry that Snap’s reorganization could lead advertisers to slow or even pause their spending. Given Snap had been growing headcount over 30% year over year for 4 straight quarters, we wonder if the company can execute on its lofty growth objectives with a 20% smaller employee base.”

Story continues

By the numbers: Snap’s stock price

• All-Time High: $83.11 (Sept. 24, 2021)

• YTD Performance: -83%

• 1-Year Performance: -89%

• IPO Price (March 2017): $17

• Price After First Day of Trading (March 2017): $24.50

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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