Snap continues to struggle through its transition to a direct response business with its operating expenses increasing on its adtech stack and content feature build-out, analysts at Oppenheimer observed following the company’s second-quarter results.
Disappointing 2Q earnings and weak third-quarter guidance sent Snap shares tumbling by 19.3% to US$10.10 by noon on Wednesday.
As noted by the analysts, Snap guided revenue for the upcoming quarter that was 2% below the Street’s expectation on limited ad demand visibility and its continued platform transition.
“However, 50% of advertisers impacted by platform changes returned to 2022 spend levels, with active advertisers up 20% year-over-year,” the analysts wrote in a note to clients.
They also noted Snap’s 30% quarter-over-quarter increase in purchase-related conversions and the 40% quarter-over-quarter increase in “7-Day Pixel Purchase Optimization” conversions, as the company decreased its headcount by 20% compared to 3Q 2022’s peak.
Spotlight monthly active users were up from the first quarter at plus 51% and time spent watching Spotlight was up 200% over the year-ago quarter, the analysts highlighted.
Based on Snap’s 2Q results, the analysts said their estimates were largely unchanged, but they did reduce their 2024 and 2025 estimated earnings before interest, taxes, depreciation and amortization (EBITDA) by $286 million and $243 million respectively and lowered their 2024 gross profit estimate by 9%.
However, they increased their estimates for 2023 EBITDA by $19 million, revenue by 2% and gross profit by 1%.
The analysts maintained their ‘Perform’ rating on Snap but did not award the stock a price target.
“Shares sold off 19% after-hours, implying Snap trading at 3.5 times our 2024 revenue estimate versus peers at 4.1 times,” they wrote.
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