What Happened:
Shares of social network Snapchat (NYSE: SNAP) fell 34.5% in the morning session after the company reported fourth-quarter results with revenue and average revenue per user (ARPU) missing analysts' expectations amid elevated expectations around changes in the direct response business. User growth was steady, with DAU (daily active users) ahead of estimates as net additions in Europe and the Rest of the World more than offset the customer attrition recorded in North America. This North America attrition is sure to ring alarm bells about competition, with Meta (NASDAQ:META) recently reporting very encouraging results.
While next quarter's revenue guidance was in line, adjusted EBITDA guidance was well below. This shows that Snap's growth is coming at higher costs or less efficiency than expected. Moreover, the ARPU miss and the weakness in North America DAU indicate a challenging road ahead if the company aims to surpass expectations in the upcoming quarter. During the earnings call, management hinted at potential growth investments in North America and Europe and expressed optimism about avoiding further declines in North America in Q1. Overall, this was a mediocre quarter for Snap as the market was likely expecting more, considering the strong result reported by Meta earlier in the season.
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What is the market telling us:
Snap's shares are quite volatile and over the last year have had 26 moves greater than 5%. But moves this big are very rare even for Snap and that is indicating to us that this news had a significant impact on the market's perception of the business.
The previous big move we wrote about was 5 days ago, when the company gained 7.1% on the news that Meta reported fourth-quarter results with revenue, operating income, and EPS, all exceeding analysts' estimates. These beats were driven by better-than-expected daily active users along with a 21% year-on-year increase in ad impressions. Meta also saw a 2% tailwind in advertising pricing. Commentary across the sector also suggests the advertising market is likely to rebound in 2024.
Snap is down 29.6% since the beginning of the year, and at $11.33 per share it is trading 35.1% below its 52-week high of $17.45 from February 2024. Investors who bought $1,000 worth of Snap's shares 5 years ago would now be looking at an investment worth $1,326.
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