Snap’s latest spell as a stock market darling appears to be ending in major disappointment. Shares of the
Snapchat
owner continued to plummet Wednesday as Wall Street weighed in on its weak guidance.
Investors hoping that Snap would follow
Meta Platforms
’ upward trajectory look to have gotten ahead of themselves, but there’s still hope the company could benefit from a recovery in advertising, alongside peer
Pinterest.
Late Tuesday, the company forecast an adjusted Ebitda (earnings before interest, taxes, depreciation, and amortization) loss between $55 million and $95 million for the March quarter, much wider than the Street consensus for a loss of $21 million.
In early trading Wednesday,
Snap
stock dived 31% to $11.99, while Pinterest shares fell 1.3%.
That means Snap has given up the bulk of its gains made since the start of November. The climb had been driven by expected improvement in the advertising market, including the company finally overcoming the drag from
Apple’s
changes to limit targeted ads on mobile devices.
“We were wrong on the pace of improvement at Snap’s ads business,” wrote Wells Fargo analyst Ken Gawrelski in a research note Wednesday.
Gawrelski said he now expects Snap’s advertising revenue to grow by 14% this year, from 19% previously. The company looks to be making less progress on direct-response advertising—aimed at inspiring purchases as opposed to simply promoting a brand—than larger peers like
Meta,
he adds.
Gawrelski lowered his target price on Snap to $16 from $22 previously, but kept an Overweight rating on the stock.
He isn’t the only bull still looking for Snap to come good based on some of its more hopeful metrics. The company reported a 10% rise in daily active users in the fourth quarter from a year ago and a 20% increase in the number of small and medium-size advertisers. Snap also said users spent more than double the amount of time on Spotlight video content during the period.
Raymond James analyst Josh Beck says he still expects to see artificial-intelligence-driven improvement in advertising, and kept an Outperform rating on the stock. He did, however, lower his target price on Snap stock to $15 from $20.
One issue which is splitting Wall Street’s opinion of Snap is the company’s announcement that it would cut another 10% of its workforce—on top of a 20% reduction in 2022. Bulls are enthusiastic about the corresponding reduction in operating expenses, but Benchmark Research analyst Mark Zgutowicz questioned whether the move will reinforce Snap’s relative disadvantage in research-and-development and marketing compared with larger peers. He kept a Hold rating on Snap stock with no target price.
Attention will now turn to Pinterest, which will report earnings after the market close on Thursday.
KeyBanc analyst Justin Patterson wrote in a research note this week that he was looking for 14% revenue growth for Pinterest’s December quarter from the year-ago period. Patterson forecasts Pinterest’s 2024 revenue to climb to $3.66 billion from $3.08 billion in 2023.
Consensus projections call for Pinterest to report December quarter earnings of 51 cents a share and revenue of $991 million, according to a FactSet poll of analysts.
Pinterest was a Barron’s stock pick last year, when the stock was trading at around $27, compared with $40.63 early Wednesday.
Write to Adam Clark at adam.clark@barrons.com
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