Shares of Break closed up more than 34% on Wednesday, a day after the social networking company missed revenue estimates and issued light guidance in its fourth-quarter earnings report.
The company is struggling with a slower recovery from a difficult 2022 advertising market compared to other companies such as After.
It was Snap’s third-worst day on the market since its debut in 2017. The two biggest one-day declines were a 43% drop in May 2022 and a 39% drop two months later.
Snap reported revenue of $1.36 billion for the quarter, slightly below the $1.38 billion analysts were expecting, according to LSEG, formerly Refinitiv. The company reported adjusted EPS of 8 cents versus the 6 cents analysts expected.
The results mark the company’s sixth straight quarter of single-digit sales growth or decline. Snap predicted its growth would gain momentum in the first quarter, but not as quickly as analysts expected.
Morgan Stanley analysts maintained an underweight rating on Snap and cut their price target to $11 in a note to investors on Wednesday, writing that the company’s ad recovery was slower than expected and its commitment weak. They noted that strong ad improvements and an increase in impressions in Meta and Amazon could represent another headwind for Snap’s ad revenue.
“While we are encouraged by the progress we are making with our ad platform and the improved results we are delivering for many of our advertising partners, we believe the start of the conflict in the Middle East has been opposite year-over-year. growth of approximately 2 percentage points in the fourth quarter,” Snap said in a letter to investors.
Analysts at Barclays remained bullish after earnings, maintaining an overweight rating and $15 price target on the stock and writing that “the bearish market looks worrisome, but it’s likely the right thing to do here.”
“Taking a step back, 4Q was a mixed bag, but the acceleration in 1Q gives us confidence that things are back on track,” the analysts wrote. “SNAP feels like the META from about 5 quarters ago, at the top of some very good bullish trends, but with few thesis believers.”
Analysts at JPMorgan reiterated their underperform rating on Snap shares, while raising their price target from $9 to $11 based on 2025 revenue expectations of about $5.9 billion and writing that “stronger growth in engagement and ad platform’ in light of ‘static recovery’. reflected in the company’s fourth quarter earnings and first quarter outlook.
“Meanwhile, extreme volatility in Snap stock will keep many at bay, and the company will need to continue to show it can lead to improved execution,” they wrote.
In an interview on CNBC’s “Money Movers” on Wednesday, CEO Evan Spiegel said Snap is “already seeing” improved performance from advertisers, which the company expects will lead to increased revenue.
“I think advertisers are looking for an alternative to these very large Big Tech advertising companies,” Spiegel said. “They want to diversify their ad spend, but they need to see performance, and that’s why we invest so much in our direct response.”
In response to a question about Snap’s decision earlier this week to eliminate about 10% of its global workforce, or about 500 employees, Spiegel said the cuts will boost execution by removing layers of management to allow the company to “goes faster.”
— CNBC’s Michael Bloom and Jonathan Vanian contributed to this report.
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