The Snap stock opened today with a nearly 30% downward gap amid a disappointing Q2 report. Snap has lost more than 65% of its valuation since the beginning of the year, and today the markets are pricing in another wave of panic. The company's business model appears to be failing during the projected economic downturn. Concerns around the slowdown are spreading throughout the advertising-based technology sector. Pre-opening trading suggests Meta Platforms and Alphabet shares opened lower.
Snap's results against analysts' forecasts Refinitiv indicated:
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Create account Try a demo Download mobile app Download mobile appEPS: -$0.02 loss vs. -$0.01 forecast
Revenue: $1.11 billion vs. $1.14 forecast
Users: 347 million vs 344.2 million forecast by StreetAccount
- The company did not provide forecasts for the third quarter of the year. Snap reported only that Q3 2021 revenue looks 'flat' compared to Q3 2021 and any forecasts in the current economic environment are difficult. The lack of precise forecasts further disappointed markets, which had expected up to 18% sales growth in Q3 according to a Refinitiv survey. The revenue growth rate for Q2 (13%) turned out to be lower than expected (16%), although this too was understated after a dismal first quarter of the year for the company;
- The company admitted in the report that it is not satisfied with the results it is delivering and they do not 'meet the scale of its ambitions. Snap attributed the weaker report to slowing demand for its proprietary online advertising platform. The company was also not helped by Apple's iOS update, which limits Snap's app, and growing competition (including TikTok) making the company have to pull back on some of its planned spending. Snap indicated that rising costs of capital are curbing its investment appetite;
- While a catastrophic picture does not emerge from the quarterly report itself, especially given the growing total number of users, the vision of the future presented by Snap and the growing competition fills with concern around the future of the business model. Snap was among the so-called growth companies around which growth forecasts were exorbitant, and the stock traded at a high premium making the current disappointment all the more acute for bulls;
- The company joined technology companies like Tesla and Amazon, which reported cost-cutting programs this year. The company's management announced that it intends to significantly slow the rate of growth in operating costs. At the same time, the company expects revenue growth to weaken further. The established $500 million share repurchase program did not improve the overall tone of the weak quarterly report and did not change the perception of the bumpy future vision presented by Snap;
- Even before Snap's results, JP Morgan analysts warned of an 'earthquake' to come in the advertising market amid the projected slowdown and cost-cutting programs that many companies are implementing under current market conditions. In addition, bearish concerns around the preservation of the high revenue growth rate of technology companies that have enjoyed gains over the past decade confirms that the economic outlook has changed and does not look optimistic.
Chart of Snap Inc. (SNAP.US), W1 interval. The stock entered a downtrend by falling below the 200-session moving average SMA200 in March 2022. In the olib of successive panic sell-offs, demand weakened enough to not even attempt to reattach key long-term resistance near $30 per share. Today's downward opening will further distance the prospect of a recovery by the bulls. Source: xStation5
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