TLDR
- Snap stock fell 11% Thursday despite B. Riley upgrade to Buy, as Q4 advertising revenue of $1.48 billion missed Wall Street estimates
- Paid subscribers jumped 71% to 24 million, with new memory storage subscriptions helping diversify revenue beyond advertising
- Daily active users dropped to 474 million as company reduced marketing spend to improve margins and profitability
- Q1 revenue guidance of $1.50-$1.53 billion came in below analyst expectations, raising concerns about growth momentum
- Multiple analysts cut price targets citing increasing difficulty competing against Meta, Alphabet, and Amazon for ad dollars
Snap shares dropped 11% to $5.28 Thursday after the social media company reported mixed fourth-quarter results that left Wall Street worried about future growth prospects.
The company posted advertising revenue of $1.48 billion for the quarter. That fell short of the $1.49 billion analysts expected.
B. Riley analyst Naved Khan upgraded the stock to Buy from Neutral despite the selloff. He maintained his $10 price target and cited progress in developing new revenue streams.
The upgrade came one day after Snap reported better-than-expected overall financials. Total revenue reached $1.72 billion, beating the $1.70 billion estimate.
Subscriber Growth Provides Bright Spot
Snap’s paid subscriber base grew 71% year-over-year to 24 million users in the fourth quarter. The company started charging for memory storage plans in September after offering the feature free since 2016.
Users now pay for upgraded storage to save large amounts of content directly in the app. Khan highlighted this as a positive step toward revenue diversification.
The company has long relied heavily on advertising for income. That leaves it vulnerable to shifts in the digital ad market.
Snap also reported earnings of $0.03 per share. That missed the consensus estimate of $0.15 by a wide margin.
Daily active users fell roughly 3 million to 474 million in the quarter. Management attributed the decline to reduced marketing spend as they focus on profitability.
Analysts Split on Growth Outlook
Not all Wall Street analysts shared Khan’s optimism about the stock. Several firms cut their price targets following the earnings report.
Canaccord Genuity analyst Maria Ripps lowered her target to $7 from $9. She maintained a Hold rating and expressed concern about muted advertising revenue growth.
Ripps warned that economic uncertainty could pressure smaller platforms if advertisers redirect budgets to larger competitors. The strategic changes show promise but questions remain, she wrote.
Wells Fargo analyst Ken Gawrelski cut his target to $8 from $10. He kept an Equal-Weight rating on the shares.
Gawrelski pointed to the challenge of competing against megacap tech companies. Meta Platforms, Alphabet, and Amazon spend billions to drive ad performance.
“There is simply no answer, in our view, to the billions these three spend to drive ad performance,” he wrote Thursday.
Susquehanna also reduced its price target from $9 to $6.50 with a neutral rating. The average analyst rating sits at “Reduce” with a consensus target of $8.98.
The company forecast first-quarter revenue between $1.50 billion and $1.53 billion. That guidance came in below Street expectations and fueled concerns about slowing momentum.
Management emphasized embedding AI across the ad platform to boost advertiser performance. The strategy aims to drive more profitable growth and accelerate revenue diversification.
Snap filed its Form 10-K for fiscal year 2025 this week. CTO Robert C. Murphy sold 1 million shares in November at $8 per share for $8 million total.
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