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Snap’s stock crash on Friday after a dismal second-quarter earnings report and brutal call is well warranted, one analyst explained to Yahoo Finance.
“I feel like the company is going through a near-death experience,” MKM Partners Analyst Rohit Kulkarni said on Yahoo Finance Live (video above). “It’s macroeconomic, Apple and TikTok on top of that customer concentration.”
Despite an awful first quarter that did its part to reset investor growth expectations in the current environment, Snap’s latest results were arguably more worrisome.
The company posted sales of $1.11 billion, shy of Wall Street estimates for $1.14 billion, as the slowing economy further pressured Snap’s ad business. Adjusted operating profits crashed 94% to $7.1 million. Free cash flow was an outflow of about $147 million.
Snap did tally up 347 million daily active users versus the 343.2 million expected. But that wasn’t enough for Snap’s executive team to pitch sunnier days ahead to Wall Street.
“We have seen a pretty good deceleration over the last 90 days,” Snap CFO Derek Anderson told analysts on a conference call. “Specifically, advertising spending in particular, auction-driven direct response advertising is among the very few line items in a company’s cost structure that they can reduce immediately in response to pressure on their top line or their input costs. As a result, as many industries and verticals have come under top line or input cost pressure, advertising spending has been amongst the first areas impacted.”
Snap also withheld third-quarter guidance amid the uncertainty it’s seeing in the business.
In total, 12 Wall Street firms slashed their ratings on Snap shares today in a show of concern over future growth.
“We found incremental concerns that temper our enthusiasm around the company’s near- to mid-term growth prospects, and we are therefore downgrading SNAP to hold,” Deutsche Bank Analyst Benjamin Black wrote in a note to clients. “Our concerns are as follows: 1) As the overall demand environment slows, SNAP’s ability to grow has contracted as incremental (and experimental) budgets have decreased. Perhaps more concerning, the company highlighted increased competition for advertising dollars, and we think SNAP may have been displaced by TikTok as the experimental platform of choice (which has become the 3rd platform behind META and GOOGL) and is now less able to garner outsized share of these incremental spending budgets as demand trends normalize.”
Black downgraded his rating on Snap to hold from buy.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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