Snap (NYSE:SNAP) stock is plunging more than 30% today after the company reported lower-than-expected second-quarter revenue after the market closed yesterday. Additionally, Snap, which owns the social media app Snapchat, noted its average revenue per user, or ARPU, had dropped significantly versus the same period a year earlier. Year-to-date, SNAP stock is down more than 75%.
A Revenue Miss and an ARPU Decline
Specifically, Snap’s revenue came in at $1.11 billion versus analysts’ average estimate of $1.13 billion. The company’s revenue increased 13% year-over-year, but its ARPU sank 13% YOY. Finally, Snap reported a free cash flow loss of $147 million.
Stating that Snap was “not satisfied” with its Q2 results, the company blamed the earnings miss on “platform policy changes,” likely a reference to Apple’s (NASDAQ:AAPL) privacy rule changes. It also mentioned “macroeconomic challenges” and “increasing competition for advertising dollars that are now growing more slowly” contributed to Snap’s disappointing top line.
“Our revenue growth has substantially slowed, and we are evolving our business and strategy to adapt. We are working to reaccelerate growth and take share, but we believe it will likely take some time before we see significant improvements,” the company reported.
Snap declined to provide Q3 guidance, citing the unknowns facing its business.
Analysts Reacted Negatively to Snap’s Results
Multiple analysts downgraded SNAP stock in the wake of the company’s results. Evercore ISI’s Mark Mahaney lowered SNAP stock to “in-line.” He stated the “magnitude of the weakness” of Snap’s results was unexpected, and cited the firm’s decision to reduce its 2023 revenue and EBITDA estimates by at least 25%.
Goldman’s Eric Sheridan reduced his rating on SNAP stock to “neutral” from “buy.” He stated:
“Looking forward, we expect Snap as a stock to be range bound for the short/medium term as investors digest a new normal of depressed revenue growth, optimized hiring cadence (while still making investments in platform evolution) and low/no visibility as to improved operating performance.”
The analyst cut his price target on the shares to $12 from $25.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
