What To Make Of SNAP As Stock Slips On Poor Earnings

Shares of Snap Inc SNAP plummeted nearly 40 percent last week after the messaging company released a vastly disappointing earnings report for the second quarter.

For the current quarter, Snap posted Earnings Per Share (EPS) is down -$0.22, after taking a net loss of -$422 million on sales of $1.1 billion. This equates to an adjusted loss of 2 cents per share.

EPS is Just One Indicator of Performance

Analysts are not in solid agreement on the rating of SNAP stock, with about half of analysts giving a HOLD rating with another third giving a BUY rating. The handful of outliers doesn't agree either, with some giving an outperform and others giving a sell rating. Overall, then, it appears that Snap has a MODERATE BUY rating.

The stock has been in steep and steady decline since August of last year, when the stock hit its peak of $76.11. Presently, the average price target for the next earnings report, which is due in October, is $15.86 with a low of $9 and a high of $34.

Indeed, Snap's stock price remains at the very low end of the range, which seems to have been the trend for the better part of the last 12 months. Today's price is around $9.96 in a range of roughly $9.91 to $11.11. This value is at the very bottom of the 50-day range, which is $9.96 to $24.54; the 52-week range is $9.91 to $83.34.

Overall, this means the stock is showing a 3-month performance of -66.53 percent, a YTD performance of -78.82 percent, and a 1-year performance of -87.23 percent.

SNAP Beats Estimates But Still Falls Short

While EPS outperformed the consensus estimate near the end of last year, that's also when things started to change. Accordingly, EPS losses in 2022 outpaced annual sales. For example, Q3 2021 Forecast an EPS range from -$0.19 to $0.02 with a consensus estimate of -$0.10. Reported earnings settled above the consensus estimate but still negative, at -$0.05.

Similarly, the Q4 2021 EPS range was -$0.15 to -$0.02 and had a consensus estimate of -$0.09. The reported earnings for the quarter also settled in the range but fell short of the estimate, at $0.01. Unfortunately, this was the last time in recent history Snap shares would beat the estimate.

The Q1 2022 forecast had an EPS range from -$0.26 to $0.00 with a consensus estimate of -$0.17. Reported earnings for the quarter also settled in the range, but this time failed to meet the estimate, coming in at -$0.22.

Similarly, Q2 2022 carried an EPS range forecast from -$026 to -$0.16 with a consensus estimate of -$0.21. Reported earnings came in at the very bottom of the range, at -$0.26, which also failed to meet the analyst estimate.

Overall quarterly EPS growth is up +16.67 percent, while quarterly sales growth is down -2.61 percent.

Annually, 2021 EPS had a range of -$0.50 to -$0.35 with a consensus estimate of -$0.43. Reported earnings came in at -$0.31, which is up +27.53 percent over the previous year. Unfortunately, annual sales growth is down -157.41 percent.

A Shrinking Market Share Complicates Future Outlook

It really should not be too much of a surprise that Snap share value continues to fall. Actually, it was back in September of 2021 when the share price came close to matching the analyst estimate. And since that time, Snap has failed to hit the consensus price target.

The Snap share decline is also not surprising when you look at their volume. Analysts expected Snap to increase total daily active users to 343.2 million. And while the 347 million daily active users they tallied last month certainly beat expectations, the margin is so small it wasn't enough to excite the executive team into pitching a brighter outlook down the road.

Indeed, overall demand environment for the kind of product Snap markets is slowing, and Snap's growth potential is also contracting as a result of budgetary issues. In the same environment, though, competition is increasing; and that puts them under yet more pressure. In particular, analysts fear that SNAP may have finally been displaced by sharing app TikTok as the "experimental" platform of choice for mobile users. TikTok is now the 3^rd biggest of such platforms, behind [Facebook Parent] Meta and [Google parent] Alphabet.

The Tech Sector Is Down, As A Whole

The bigger complication coming out of Snap's fall, is the sell-off it inspired across the bigger internet market. While nobody suffered as significant a drop as Snap, shares of both Google GOOG and its parent company, Alphabet, Inc GOOGL fell -5.8 percent and -5.6 percent, respectively. Facebook's parent Meta Platforms Inc META slipped at a slightly faster pace of nearly -7.6 percent. Also, Pinterest PINS was down as much as 13.5 percent, at one point. Twitter TWTR somehow managed to avoid the drama, as the only social media company to post positive results, even at just +0.8 percent on the day.

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