Snap shares plunge 14% following Q4 report, warns of sales drop; analysts mostly bearish

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(Updated - February 1, 2023 4:47 AM EST)

Snap (NYSE: SNAP) shares plunged more than 14% after-hours following the company’s reported Q4 results, highlighted by slowing revenue growth as digital ad struggles continue.

Q4 EPS came in at $0.14, better than the consensus estimate of $0.11. Revenue was flat year-over-year at $1.3 billion (up 2% year-over-year on a constant currency basis), in line with consensus estimates.

According to the company, Q4 materialized largely as expected, with weaker demand from its brand-oriented advertising business, which declined 11% year-over-year, while its DR business performed relatively better, up 4% year-over-year.

DAUs grew 17% year-over-year to 375 million in Q4. DAUs increased sequentially and year-over-year in each of North America, Europe, and Rest of World.

In a letter to investors, Snap said 2022 was a challenging year, as it continued to experience the impact of macroeconomic headwinds, platform policy changes, and increased competition.

For Q1/23, the company expects DAUs in the range of 382-384M. On the monetization side, the company anticipates that the operating environment will remain challenging, as it expects the headwinds faced over the past year to persist throughout Q1.

Given uncertainties related to the operating environment, the company didn’t provide expectations for revenue or adjusted EBITDA for Q1. The company observed a year-over-year decline in revenue of approximately 7% quarter-to-date. Its internal forecast assumes revenue to decline 2%-10% year-over-year in Q1.

Morgan Stanley analyst Brian Nowak remains "cautious" on SNAP stock following weaker than expected Q1 guidance which reflects "continued micro uncertainty in challenged macro backdrop."

"We remain UW given low near-term ad visibility, challenged engagement trends, and high execution risk," Nowak wrote in a client note.

Similarly, Truist analyst Youssef Squali reiterated a Hold rating but slashed the price target to $8 per share from the prior $10 on continued macro and product headwinds.

"While these headwinds are industry-wide, we believe SNAP is likely more impacted than GOOGL and META given its smaller size, under-indexing to SMBs, and its still evolving 1P data/measurement solutions to offset IDFA deprecation. SNAP's cost-cutting measures should help it protect profitability and margins in 2023, but efforts to re-accelerate growth/monetization thru DR product improvement and scaling of new offerings will likely take time," the analyst said to clients in a note.

SNAP stock also earned a downgrade as UBS moved to Neutral from Buy after earnings.

By Davit Kirakosyan and Senad Karaahmetovic

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