Here’s Why Snap Stock is Crashing 25%

October 22, 2021

Snapchat stock earnings

Earnings season in the US always brings plenty of surprises for investors. That’s because in the short term, share prices tend to move in reaction to earnings releases.

After starting out cheerily enough, with some impressive numbers from the likes of Netflix Inc (NASDAQ: NFLX) and Tesla Inc (NASDAQ: TSLA), last night saw some drama unfold.

What happened

This was mainly down to an earnings release from Snap Inc (NYSE: SNAP), the owner and operator of the highly popular Snapchat app.

Shares in the social media firm promptly fell as hard as 25% in after-hours trading as the market was spooked by its latest third-quarter earnings release.

So what

For the third quarter, Snap posted revenue of US$1.06 billion, which was up 57% year-on-year but, crucially, came in below its own previous guidance of US$1.07-1.085 billion.

Compounding that miss on the top line was the fact that Snap management guided for revenue of US$1.16-1.20 billion in the fourth quarter, which fell well short of consensus expectations of US$1.36 billion.

Part of the poor numbers were blamed on Apple Inc’s (NASDAQ: AAPL) changes to its ad tracking policies, which have impacted numerous firms that rely on paid mobile advertising.

What scared markets more were comments from Snap that beyond this, there were issues impacting its advertising partners that stemmed from them “facing a variety of supply-chain interruptions and labour shortages”.

These comments have provided mounting evidence that supply chain issues are not only going to impact retailers and is one thing investors are keeping a close eye on, as I outlined previously in “3 Big Things to Watch This Earnings Season”.

That overshadowed some positives for Snap, such as the fact that its global daily active user (DAU) count hit 306 million, up 23% year-on-year (see below). It continues to prove that its platform is extremely sticky.

Snapchat DAU Q3 2021

Source: Snap Q3 2021 earnings presentation

Where next for Snap?

Investors will be closely watching results releases from other big online advertising firms, with the two biggest – Facebook Inc (NASDAQ: FB) and Alphabet Holdings Inc (NASDAQ: GOOGL) – set to report numbers next week.

It was no coincidence that their stocks also fell after hours in response to Snap’s earnings, with Facebook down as much as 6% and Alphabet falling just over 3%.

However, in Snap’s case the growth story seems to remain intact despite the short-term difficulties.

The trend for advertising to move online, and increasingly towards new channels such as Snapchat, is not something that supply chains will slow down over the long term.

Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips doesn’t own shares of any companies mentioned.

Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.

He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.

In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.

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