What Happened?
Shares of social network Snapchat (NYSE: SNAP) jumped 15.4% in the afternoon session after the company reported third-quarter earnings that blew past analysts' EBITDA expectations. It also expanded its number of users. Holding aside consensus expectations, its revenue growth stalled, which is worrisome. Overall, this quarter had some key positives, and expectations were likely low given a history of inconsistent quarterly performance.
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What The Market Is Telling Us
Snap’s shares are quite volatile and have had 16 moves greater than 5% over the last year. But moves this big are rare even for Snap and indicate this news significantly impacted the market’s perception of the business.
The biggest move we wrote about over the last year was 9 months ago when the stock dropped 34.5% on the news that 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 was sure to ring alarm bells about competition, after Meta reported very encouraging results. While next quarter's revenue guidance was in line, adjusted EBITDA guidance was well below. This demonstrated that Snap's growth came in at higher costs or less efficiency than expected. Moreover, the ARPU miss and the weakness in North America DAU indicated 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.
Snap is down 20.9% since the beginning of the year, and at $12.77 per share, it is trading 26.8% 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 $859.02.
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