Snap stock tanks after forecast disappoints: Investor patience is ‘thinning’

By Stock News On Feb 7, 2024 4 0

Snap stock (SNAP) tanked on Wednesday, sinking more than 30% as investors digested another disappointing quarterly earnings report.

The Snapchat parent company posted Q4 quarterly revenue of $1.36 billion, below Street estimates for $1.38 billion. The company has now missed revenue estimates on six of the last eight reports. And now, it says it expects to lose more money in the current quarter than Wall Street expected, too.

The company is now projecting an adjusted EBITDA loss in a range of $55 million to $95 million for the period, a wider loss than the $32.7 million Wall Street expected.

Snap says that loss will come alongside a higher revenue growth rate than seen this quarter as the company continues on its “investment plans.”

For investors, the key question will be if those plans help Snap complete its turnaround story. RBC Capital Markets analyst Brad Erickson believes investors may be tired of waiting for it.

“Investors’ patience for underwriting growth-oriented investments seems poised to continue thinning,” Erickson wrote in a note to clients.

Investors had bid up the stock more than 60% over the last six months as excitement grew around a turnaround for Snap. But after Tuesday night’s report, shares sold off. The stock has tumbled in reaction to each of the last seven earnings reports as investors struggle to see how a company whose shares were once priced at more than $80 creates a solid growth pitch again.

MoffettNathanson senior research analyst Michael Nathanson that the market was “once again fooling itself that this time would be different” as Snap shares soared over the past several months. He added that the Snap story has often felt like investors are only a quarter away from seeing change “every quarter.”

“Truth is, with the ramping competition in AI-enabled product solutions at major, larger companies, it is hard to see how Snap’s competitive position and financial profile gets materially better,” Nathanson wrote in a note to clients on Wednesday.

Snap is lagging other social media companies’ success in monetizing AI engagement and is seeing a worse advertisement environment than other competitors are.

On the company’s earnings call, Snap CEO Evan Spiegel didn’t provide precise numbers to explain how the company’s investment in MyAI, its version of an AI chatbot, is paying off.

“Overall, our Generative AI efforts have been much more focused on image and video models and helping people edit their snaps or generate snaps in new and entertaining ways. And really using that as an on-ramp to Snapchat Plus.”

Citi analyst Ronald Josey wrote in a note to clients that as long as investment into AI products increases, gross margins are “likely to remain challenged.”

And this could be a holdup for investors looking for long-term profitability, which Nathanson notes has been elusive. Put simply, Snap’s low-single-digits advertising revenue in the prior quarter is another part of the puzzle that has investors questioning why Snap can’t compete with others in the social media and advertising markets.

“With two behemoths in the space — Google and Meta — forecasted to grow advertising revenues in the high-single to low-double digit range over the same time period while also continuing to invest in their own businesses, we continue to question whether Snap truly has the ability to carve out a substantially profitable business,” Nathanson wrote.