TLDR
- SNAP shares surged 15% following Q2 results before reversing course, currently trading approximately 10% below post-earnings peaks
- Second quarter revenue reached $1.60 billion, representing 18.9% annual growth and surpassing analyst expectations of $1.54 billion
- Daily active users in North America declined 7% annually, raising red flags about advertising revenue sustainability
- Zacks Investment Research moved SNAP to “strong sell” from “hold,” while Wall Street consensus maintains “hold” with $7.65 target
- Evan Spiegel avoided disclosing pre-order figures for the $2,195 Specs AR glasses scheduled for September release
Shares of Snap tumbled to $5.32 during Wednesday’s trading session following a Zacks Investment Research downgrade from “hold” to “strong sell,” representing an 8.1% decline from the previous close of $5.79.
This sharp decline arrived mere days after the stock had rallied 15% on stronger-than-expected second quarter results. The social media company delivered revenue growth of 18.9% year-over-year, hitting $1.60 billion versus Wall Street’s $1.54 billion projection. Adjusted EBITDA exploded 505% higher, while the adjusted per-share loss of $0.10 bettered the consensus forecast of a $0.12 loss.
However, the post-earnings euphoria proved short-lived. As market participants dug deeper into the underlying metrics, troubling patterns emerged that prompted a reassessment.
Snap disclosed 495 million global daily active users for the second quarter, marking 5% annual expansion. The composition of that growth tells a concerning story. North American daily users contracted 7% year-over-year, while European users decreased 2%. International markets outside these regions accounted for all user growth.
This geographic mix presents a significant challenge for monetization. Average revenue per user in international territories hovers around $1, starkly contrasting with North America’s $10.26. While North American ARPU climbed nearly $2 year-over-year and contributed to the revenue beat, the contracting user base in this high-value market creates meaningful headwinds for sustained growth.
Wall Street Maintains Cautious Stance
Post-earnings analyst reactions reflected measured optimism at best. Citigroup elevated its price objective from $6.50 to $6.75 while maintaining a “neutral” stance. Canaccord Genuity reduced its target from $7.00 to $6.00, also keeping a “hold” rating. Stifel Nicolaus established a $7.50 price objective. Both Piper Sandler and Guggenheim stayed neutral, though Guggenheim increased its target from $5.00 to $5.50.
Wall Street’s consensus across 36 analysts remains at “hold,” with an average price target of $7.65. The breakdown includes one strong buy rating, eight buy recommendations, 24 hold ratings, and three sell ratings.
Corporate insiders have been reducing positions as well. Chief Technology Officer Robert Murphy offloaded 2 million shares in May at $5.44 per share, totaling $10.88 million. Chief Accounting Officer Rebecca Morrow sold approximately 16,700 shares at $5.60. Collectively, insiders divested roughly 2.87 million shares valued at $15.9 million during the past three months.
Specs AR Glasses: High Stakes, Unclear Returns
Snap introduced its Specs augmented reality glasses in June, with commercial availability planned for September. At $2,195, the device positions itself between Apple’s Vision Pro and Meta‘s Ray-Ban collaboration in the emerging AR hardware market.
During the earnings conference call, CEO Spiegel characterized the Specs announcement as generating “a huge amount of interest” but conspicuously avoided providing pre-order data. BNP Paribas analyst Nick Jones noted that the return on investment for Specs “is still a question mark.”
Management provided third quarter revenue guidance of approximately $1.7 billion, with FIFA World Cup-related advertising demand bolstering second quarter performance. Increased spending from major North American advertisers also supported results. Despite recent weakness, the stock remains up 11% for August. SNAP’s 50-day moving average currently sits at $4.96, with the 200-day moving average at $5.33.
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