Snap Stock (NYSE:SNAP)
Investors have responded positively to evidence of progress in the advertising sectors, driving up the price of Alphabet and Meta Platforms shares. This week benefited the “haves” while the “have-nots” did not.
While analysts predicted a decline in sales for Snap (NASDAQ:SNAP) this quarter, the 7% drop the company reported was worse than expected.
The company’s main market, North America, saw sales drop 16% to $640M while sales elsewhere in the globe increased.
That followed significant upgrades to the company’s advertising platforms. Truist Securities acknowledged these shifts in its response to the report and the gap in performance between Snap and its larger competitors this week.
Youssef Squali, an analyst at Constellation Research, noted that “Snap remains more vulnerable than larger ad platforms, namely GOOGL, META, and AMZN,” because of the company’s “under-indexing to [small/medium-size businesses]” and its “evolving [first-party] data/measurement solutions to offset IDFA deprecation.”
The decision by management to switch to a new ad format and “invest aggressively in [machine learning] to speed up content and ad platform ranking to re-accelerate growth makes sense to us, but it will probably take time,” Squali said. He continued to recommend a Hold.
KeyBanc’s Justin Patterson says, “It’s a tough time to invest in growth.” Snap’s new investments in AI are likely to be seen with suspicion due to the need for clarity around expected return profiles in emerging technologies like augmented reality. He now expects Snap’s revenue to decline by 2% for the year, with EBITDA approaching break-even. He has lowered his revenue projections for 2023 and 2024 by 8% and 6%, respectively.
Stephen Ju of Credit Suisse maintains an Outperform rating even though other analysts have taken a pass. While he conceded that there would be “uncertain macro” and headwinds from direct-response platform optimization and the cost hit from spending on AI, he also saw “(1) optionality for positive impact from ad platform improvements, (2) potential for continued audience expansion on ongoing product rollouts and global content initiatives, and (3) monetization optionality from Snap’s other engagement surfaces (Maps/Spotlight), along with longer-term advertiser adoption of AR.”
Featured Image: Unsplash @ Alexander Shatov