TLDR
- Snap stock jumped 15% after Q2 earnings then reversed, now down around 10% from its post-earnings high
- Q2 revenue came in at $1.60 billion, up 18.9% year over year, beating the $1.54 billion estimate
- North American daily active users fell 7% year over year, a key concern for ad revenue growth
- Zacks downgraded SNAP to “strong sell,” while the consensus rating remains “hold” with a $7.65 price target
- CEO Evan Spiegel dodged questions on pre-orders for the $2,195 Snap Specs glasses, launching in September
Snap stock hit $5.32 on Wednesday after Zacks Research downgraded it from “hold” to “strong sell,” a drop of 8.1% on the day. The stock had previously closed at $5.79.
The selloff came just days after SNAP jumped 15% on the back of a Q2 earnings beat. Revenue rose 18.9% year over year to $1.60 billion, clearing the $1.54 billion estimate. Adjusted EBITDA surged 505%, and the adjusted loss of $0.10 per share was narrower than the expected $0.12 loss.
But the initial excitement didn’t last. Investors started looking closer at the user numbers, and what they found wasn’t pretty.
Snap reported 495 million daily active users in Q2, up 5% year over year. The problem is where that growth is coming from. North American daily users dropped 7% year over year, and European users fell 2%. All the growth is coming from the rest of the world.
That matters because the revenue per user outside North America is roughly $1, compared to $10.26 in North America. North American ARPU did rise by nearly $2 over the past year, which helped drive the revenue beat, but a shrinking user base in the core market puts a ceiling on that story.
Analyst Reactions Stay Cautious
Analyst moves after earnings were mixed. Citigroup raised its price target from $6.50 to $6.75 with a “neutral” rating. Canaccord Genuity cut its target from $7.00 to $6.00, also holding at “hold.” Stifel Nicolaus set a $7.50 target. Piper Sandler and Guggenheim both stayed neutral, with Guggenheim lifting its target from $5.00 to $5.50.
The consensus sits at “hold” across 36 analysts, with an average price target of $7.65. One analyst has a strong buy, eight have buy ratings, 24 hold, and three are at sell.
Insiders have been selling too. CTO Robert Murphy sold 2 million shares in May at $5.44, a $10.88 million transaction. CAO Rebecca Morrow sold around 16,700 shares at $5.60. In total, insiders sold about 2.87 million shares worth $15.9 million over the past three months.
Snap Specs: A Big Bet With Open Questions
Snap unveiled its Specs AR glasses in June, with an official launch set for September. Priced at $2,195, the glasses sit between the Apple Vision Pro and Meta Ray-Bans in the hardware lineup.
On the earnings call, Spiegel said the Specs announcement created “a huge amount of interest” but did not give any pre-order numbers. BNP Paribas analyst Nick Jones said the return on the Specs investment “is still a question mark.”
Snap issued Q3 revenue guidance of approximately $1.7 billion, and FIFA World Cup-related ad demand helped lift Q2 numbers. Higher spending from large North American advertisers also contributed. The stock is still up 11% in August despite the recent weakness. SNAP’s 50-day moving average stands at $4.96, with the 200-day at $5.33.
