Social media stock Snap (NYSE:SNAP) had a terrible earnings report. Analysts responded by downgrading the shares.
Some 14 analysts downgraded Snap after its earnings came in well below estimates. Snap said it lost $422 million, or 26 cents per share, on revenue of $1.11 billion. The company said the non-GAAP loss was just 2 cents a share, and that revenue continues to grow, but investors weren’t impressed.
Co-founder Evan Spiegel is still a billionaire. To make sure he stays one, directors announced a split that could let him maintain control of the company even if he sells his stock. The move did not help the shares.
SNAP Stock Snaps
The analyst action was highlighted by a rare “double downgrade” from Morgan Stanley analyst Brian Nowak, who now rates the stock as “underweight.” Before earnings it was “overweight.”
Rosenblatt analyst Barton Crockett said he was amazed at how fast Snap’s revenue growth fell. The company had predicted 50% growth as recently as February, but scored just half that on a year-over-year basis. Truist cut its rating and now has a $12 price target.
Even analysts who maintained their ratings on the stock cut their price targets.
Fear that advertisers will flee social media also led shares in Twitter (NYSE:TWTR) and Meta Platforms (NASDAQ:META) down. Meta’s price is now half what it was in January. The company is due to report results on July 27.
Media stocks like Warner Brothers Discovery (NASDAQ:WBD) and Paramount Global (NASDAQ:PARA) also fell in response to Snap’s numbers, but were recovering July 25. Whether advertising itself is falling has yet to be seen.
What Happens Now
The misuse of social media could lead advertisers to shun the platforms.
Snapchat continues to have high hopes for its augmented reality goggles, called Spectacles, and for its Pixy drone, a photo drone built with Snapchat in mind.
Snap will have to prove itself again before the stock can sustain a rebound. Investors should not expect a quick snapback.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.