Shares of Snapchat owner, Snap, have been on a downward spiral recently, causing disappointment among investors. While many were optimistic that Snap would follow the upward trajectory of Meta Platforms, it seems they may have been too hopeful. However, there is still a glimmer of hope that the company could benefit from a recovery in advertising, much like its peer, Pinterest.
Late Tuesday, Snap released its forecast for the March quarter, predicting an adjusted Ebitda loss between $55 million and $95 million. This is significantly wider than the expected loss of $21 million by analysts on Wall Street.
As a result, Snap’s stock took a sharp dive on Wednesday, plummeting 36% to $11.26. In comparison, Pinterest experienced a more modest decline of 0.7%.
This drop in stock price erases a significant portion of the gains Snap had made since November. The initial rise was driven by anticipated improvements in the advertising market, particularly with Snap overcoming the challenges posed by Apple’s restrictions on targeted ads for mobile devices.
However, it appears that Wells Fargo analyst Ken Gawrelski acknowledged their miscalculation on the pace of improvement in Snap’s ads business. Gawrelski now expects Snap’s advertising revenue to grow by 14% this year, down from the previous estimate of 19%. He notes that Snap is struggling to make as much progress in direct-response advertising as Meta and other larger competitors.
Consequently, Gawrelski has adjusted his target price for Snap to $16 from the previous $22. Despite this revision, he maintains an Overweight rating on the stock.
Snap Reports Positive User Growth and Increased Advertisers
Snap, the parent company of Snapchat, has reported encouraging metrics that have caught the attention of many investors. In the fourth quarter of last year, they saw a 10% increase in daily active users compared to the previous year. Furthermore, the number of small and medium-size advertisers also saw a significant 20% jump. Another impressive figure was the doubled amount of time users spent on Spotlight video content during that period.
Analyst Josh Beck from Raymond James remains optimistic about Snap’s future, particularly with the potential for artificial-intelligence-driven improvements in advertising. Despite this positive outlook, Beck has lowered his target price for Snap stock to $15 from $20.
Snap’s recent announcement, however, has stirred some debate on Wall Street. The company revealed plans to cut an additional 10% of its workforce, following a 20% reduction in 2022. While some bulls are enthusiastic about the corresponding decrease in operating expenses, Benchmark Research analyst Mark Zgutowicz raises concerns about Snap’s disadvantage in research-and-development and marketing when compared to larger competitors. Zgutowicz maintains a Hold rating on Snap stock without providing a target price.
Looking ahead, investors’ attention is shifting to Pinterest, as the company is set to release its earnings report after the market closes on Thursday.
KeyBanc analyst Justin Patterson predicts a 14% increase in revenue for Pinterest’s December quarter compared to the same period last year. Patterson also forecasts a climb in Pinterest’s projected revenue to $3.66 billion by 2024 from $3.08 billion in 2023.
According to a FactSet poll of analysts, consensus projections expect Pinterest to report earnings of 51 cents per share and revenue of $991 million for the December quarter.
It’s worth noting that Pinterest was a touted stock pick last year when it was trading around $27. Currently, the stock is valued at $40.63 as of early Wednesday.