Snap slumps 27% after earnings report. Ad sector under pressure 📉

Snap (SNAP.US) once again negatively disappointed Wall Street with decelerating earnings and deepens a 27% discount to its shares before the market open. Snap's weaker results may foreshadow that the economic downturn is deepening, and the decline in sentiment is spilling over to other companies where advertising plays an important role for the business model. Losers in pre-market trading include Alphabet, Meta Platforms, Pinterest and Twitter. Total capitalization losses among social media and advertising companies have already reached nearly $42 billion, with the NASDAQ alone losing nearly 1%.  

The company beat analysts' forecasts for earnings per share, but missed revenue estimates:
Earnings per share (EPS): $0.08 vs. ($0.02)USD forecast loss (Refinitiv) 
Revenue: $1.13 billion vs. $1.14 billion (Refinitiv)
Number of active users: 363 million vs. 358.2 million expected (StreetAccount)

• The company's board approved a share repurchase program worth up to $500 million. Revenues grew 6% year-over-year, however, for the first time since the IPO in 2017, the value of growth turned out to be in single digits. Net loss (despite reporting an adjusted profit) nearly quadrupled to $360 million, driven in part by a $155 million restructuring charge;
• Snap reported in August that it was cutting costs by, among other things, laying off 20% of its workforce and removing projects that do not directly contribute to user growth and revenue, and to the development of AR augmented reality. However, these changes proved insufficient to immunize the company from a further period of turmoil;
• Q3 turned out to be the slowest quarterly sales growth ever for Snap. Declining ad spending in an environment of galloping inflation and reduced consumer spending is weighing on companies that had been reaping significant profits thanks to the generosity of advertisers encouraged by rising sales figures. In addition, Snap is also struggling with increased competition, Apple's policy of blocking display ads and macroeconomic turmoil. According to Snap, a sizable portion of US businesses are cutting marketing budgets in an unfavorable market environment;

Meta Platforms and Alphabet, among others, will present results next week. Snap's report creates an unfavorable backdrop for market sentiment ahead of more important releases, although according to analysts at Evercore ISI, a sizable portion of the negative factors are specific only to Snap's business model and the company itself. Advertising sector analysts at Jefferies, on the other hand, stressed that it is difficult to point out which of the negative factors weighing on Snap are only temporary, and that uncertainty favors share price discounts. Meanwhile, advertising sector revenues may begin to consolidate around the largest players, Alphabet (Google) and MetaPlatforms making them more resilient. 

Snap (SNAP.US) stock chart, D1 interval. The sell-off in the stock is unprecedented, with the opening indicating a level near $8 per share. However, it seems that the panic reaction around the advertising sector may represent an opportunity for investors with a long investment horizon, although Snap itself will have to focus on monetizing its business. There is optimism, however, about the growing number of global users, and revenue alone missed expectations by just $10 million. Investors are concerned about rising debt levels for Snap, which has already risen 46% year-on-year in Q2 to indicate $3.773 billion. After today's opening, the level of long-term debt will correspond to roughly 25% of the company's total market capitalization. Source: xStation5