Snap Inc (NYSE:SNAP) saw its price target slashed from $16 to $12 by Canaccord Genuity following disappointing 3Q results that showcased revenue growth hitting a five-year low.
Snap’s shares tumbled 25% overnight after it reported mixed 3Q results that showed revenue of US$1.13 billion versus the $1.14 billion expected by Wall Street.
In a note following the results, Canaccord analysts said Snap is growing at the slowest rate in company history as privacy changes and inflation affect advertising spent on the platform, and that competition continues to serve as a headwind to engagement.
READ: Snap stock price crackles and drops over 25% after 3Q revenue miss
“Snap's revenue is up around 9% year over year, quarter to date, although visibility remains limited given macro uncertainty and management expects a slowdown throughout the rest of the quarter, projecting flat year over year revenue for 4Q,” the analysts wrote in a report.
They noted that, during 3Q, Snap named Jerry Hunter – who served as the company’s SVP of engineering for the past five years – as its new COO.
“Shares tumbled in after-hours trading given the ongoing growth slowdown on the heels of heightened macro uncertainty and competition, and while SNAP’s valuation is getting more reasonable, we remain Hold rated until visibility and the operating environment improve,” the analysts wrote.
Broad-based headwinds drove growth slowdown, according to Canaccord, with Snap’s 3Q revenue growing by 6% year over year to US$1.13 billion.
Adjusted EBITDA was $72.6 million, well ahead of consensus, with operational expenditure declining 8% quarter over quarter, following the commencement of Snap’s workforce reduction and investment optimization in September, according to the analysts.
Positive signs amidst disappointment
Snap did add 16 million daily active users in 3Q, well ahead of guidance and bringing the total to 363 million, a 19% increase year over year, the analysts said. Looking ahead to 4Q, the analysts said Snap expects the daily active user count to grow to around 375 million, ahead of consensus at 372 million.
“However, engagement with Friend Stories has slowed and is serving as a headwind to overall time spent watching content on the platform, which was down 5% year over year in the US, and Snap remains focused on helping users shift seamlessly from Friend Stories to Discover and Spotlight,” the analysts wrote.
Snapchat+, Snap's premium subscription service, is now available in 170 countries and has reached more than 1.5 million paying subscribers in the three months since launching, they added.
“Management expects year over year revenue growth to decelerate from the quarter to date levels and end up roughly flat year over year, primarily related to 4Q’s historical reliance on brand-oriented spend which was already down year over year in 3Q,” they wrote.
Snap shares were still falling on Friday, down 31.7% to a mid-morning price of $7.37 in New York.
Contact the author at susie@proactiveinvestors.com