Snap stock tumbled Wednesday after the Snapchat parent company posted second-quarter results. Revenue growth missed estimates, a letdown after social media competitors Meta Platforms and Reddit posted results well ahead of expectations last week.
The reaction continues a trend for Snap stock, which also fell 12% following its Q1 results in April and has struggled to build momentum following a deep slump in 2022. RBC Capital Markets analyst Brad Erickson wrote to clients Tuesday that Snap is "still leading the league in penalty box minutes" among investors.
A tough Q2 "will continue to reinforce the bear case that Snap cannot break out of being a smaller ad platform lacking the ability to durably grow its direct response business in-line with the market," Erickson wrote. He reiterated a neutral sector perform call.
Snap's second quarter revenue increased 9% year over year to $1.345 billion, below estimates of $1.35 billion. The company lost 16 cents per share, slightly more than the 15 cents per share loss forecast by Wall Street analysts, according to FactSet.
Snap said in a letter to investors that an "issue with its ad platform" caused some advertisers to win campaign auctions at "substantially reduced prices." The issue has been fixed but acted as a headwind for Q2 revenue, the company said.
On the stock market today, Snap stock is down 17% at 7.77 in premarket action. Shares are set to tumble even further below Snap's 200-day moving average.
Snap Lagging Meta, Reddit
Evercore ISI analyst Mark Mahaney also stuck to a neutral in-line rating for Snap. He wrote that it is "hard not to come out more cautious" on Snap stock following the results.
"Against a backdrop of very resilient internet sector ad revenue results and what were thought to be de-risked estimates, this was a surprisingly soft print," Mahaney wrote to clients Tuesday.
Mahaney noted that Snap blamed its revenue miss on "an execution issue with Snap's ad platform, the timing of Ramadan, and the effects of the de minimis changes."
Snap's much-larger rival Meta Platforms posted 22% sales growth for the same period. Meta's Facebook and Instagram dominate the digital ad market within social media. But the much-smaller Reddit managed to post 78% sales growth for its digital advertising business.
Snap, meanwhile, guided for sales growth of between 8% and 10% for the current quarter.
"While the midpoint of the guide beat a stale consensus by 1%, Snapchat appears to be lagging peers significantly given guidance shared recently last week," Bernstein analyst Mark Shmulik wrote to clients Tuesday.
Reddit guided for roughly 55% growth last week and Meta said it is expecting more than 20% revenue growth for Q3.
One positive from the report was Snap's growing Snapchat+ subscription revenue, Shmulik noted. The $3.99-per-month premium service reached 16 million users.
Snap Stock Down 13% This Year
Snap shares were down 13% year-to-date as of Tuesday's close and appear set to tumble further. The stock is more than 80% below record highs reached late in 2021.
Coming into the report, Snap stock had an IBD Composite Rating of 52 out of a best-possible 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating. The best growth stocks have a Composite Rating of 90 or better.
