Snap (NYSE: SNAP) shares continue to slide and burn massive investor wealth. Shares of the social media company are currently trading almost 90% from all-time highs, valuing it at a market cap of $16 billion. At its peak, Snap was valued at $121 billion.
Let’s see why Snap stock slumped more than 10% following its Q4 earnings and what lies ahead for the tech company.
How did Snap perform in Q4 of 2022?
In the quarter that ended in December, Snap reported revenue of $1.30 billion and adjusted earnings of $0.14 per share. Comparatively, analysts expected the company to report sales of $1.31 billion with adjusted earnings of $0.11 per share in Q4.
Snap ended the quarter with 375 million daily active users, while its average revenue per user stood at $3.47. But Wall Street forecast Snap’s daily active users at 375.3 million and average revenue per user at $3.49 per share.
Analysts and investors are now worried about Snap’s decelerating revenue growth, which rose less than 1% year over year in Q4. It also reported a net loss of $288 million in the quarter, compared to a net income of $23 million in the year-ago period.
Moreover, the company’s net losses almost tripled to $1.43 billion in 2022, while free cash flow narrowed by 75% to $55.3 million in the last 12 months.
Snap stock is wrestling with slowing growth
Similar to most other tech stocks, Snap benefitted from the COVID-19 pandemic and increased sales from $1.71 billion in 2019 to $4.1 billion in 2021. It, however, ended 2022 with sales of “just” $4.6 billion.
Last April, Snap forecast the company sales to grow between 20% and 25% in 2022 with an adjusted EBITDA estimate between $0 million and $50 million. However, soon after, Snap revised its guidance to reflect a challenging macro-environment. In 2022, its sales were up 12% year over year.
In addition to macro factors, Snap’s top line has been impacted by the following:
- Apple’s privacy changes
- Lower ad spending by enterprises
- Competition from TikTok
It’s the third consecutive disappointing earnings report for Snap. The stock slumped 28% and 39% following its Q3 and Q2 results for 2022, respectively. While analysts expected sales to rise 1.3% in Q1 of 2023, Snap expects it to fall year over year.
What next for Snap stock price?
It will likely be a very difficult 12 months for Snap and its social media peers. They will have to navigate the rising cost of debt and lower consumer and enterprise spending, which will negatively impact sales as well as profit margins.
But Snap continues to invest heavily in its AR (augmented reality) platform to improve customer engagement and expand its user base. The company stated, “In December, at our Lens Fest event for AR creators and developers, we shared that our AR ecosystem continues to grow and now reaches over 300,000 AR creators and developers who have built more than 3 million AR Lenses. We added new features and capabilities to Lens Studio, our AR development software, which are enabling richer and more immersive AR experiences and helping deepen engagement with AR.”
Snap stock is currently valued at more than three times forward sales and thirty times forward earnings, which might be quite steep given these estimates might easily move lower. Is there more pain ahead for investors?
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
