Snap Inc.'s Market Plunge and Investor Bewilderment

MoffettNathanson analyst Michael Nathanson expressed his frustration after Snap Inc.'s earnings report led to a sharp decline in the company's stock value. Snap, known for its popular social app Snapchat, experienced a significant stock fall, arguably as a result of what Nathanson described as investor behavior akin to 'the definition of insanity.' This phrase usually denotes repeating the same actions and expecting different results.

Snap's Pre-Earnings Stock Surge Leaves Analysts Puzzled

Prior to the earnings announcement, Snap's stock saw an almost two-fold increase, starting from a low of $9. The hike was puzzling to market watchers given the ongoing competitive and business challenges Snap has been facing. Nathanson maintained a neutral position on the stock with a target price of $8.

The stock's downturn surpassed 30% in one day, marking one of its steepest falls since a 39.1% drop in July 2022. Bernstein analyst Mark Shmulik described the stock's fluctuation as 'violent,' commenting on the unexpected intra-quarter doubling of the stock price.

Challenges Ahead for Snap Inc.

Analysts saw some positive aspects in Snap's earnings report but also recognized that there are significant areas that need improvement. The company has taken steps to downsize by cutting 10% of its workforce. While this indicates a move to become leaner, it comes with risks, especially since Snap is already considered 'sub-scale' compared to its rivals.

Furthermore, efforts to boost content engagement have not translated into substantial user growth in the U.S., leading to further competition concerns. Despite these issues, Wells Fargo analyst Ken Gawrelski remains optimistic, keeping an overweight rating but reducing his target price.

Changes in Snap's strategic approach have also been noted by Evercore ISI's Mark Mahaney, particularly the shift to focus on community growth in more developed regions. The adjustments suggest a reaction to existing weaknesses, especially considering the user base decline in North America during the fourth quarter.

Amid these concerns, questions around Snap's ad business and brand advertising performance remain, with Gawrelski admitting to having miscalculated the rate of improvement in this area.

Snap, stocks, earnings