Snap's earnings and Apple's privacy changes, disruptions in supply chains, and Facebook's next chapter might all make sense.
Snap shares are down by just over 20% this morning. This is a significant drop in the company's valuation.
The post-earnings decline is in one sense an indictment against the company's business. Snaps stock has not retreated to midyear and is still well above its historical range of prices during its less profitable days.
Snaps earnings report, and the ensuing saleoff have had a significant impact on more than just the company's value. Other social media companies have also suffered: Facebook shares fell nearly 5%, while Twitter shares dropped around 3%. It's a bad day for both public social media companies and their private-market counterparts, even though we don't see their prices changing as frequently.
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Before we dive into the implications for social media companies, let's first answer the why. We will now focus on Facebook, given its metaverse and impending name changes.
Why Snap is Down: Supply chains and Apples power
CNBC reported that Snap's most recent quarter saw $1.07 billion in revenues, which was lower than the market expectation of $1.10 trillion. Snap's revenue was 57% higher year-over-year and its net loss fell to $72 million in this quarter, compared to the $200 million it made the previous year.
Snap's cash flow performance was even better than its year-ago results. What growth? You can check. How can you improve your profitability? You can check. Check. You can check. Yet, its stock plummeted sharply. What is the reason? Guidance.
Snap stated that it expected revenues to reach $1,165 million to $1,205 million in Q4 2021. This is in contrast to the market's expectation of $1.36 billion for the current quarter. Yahoo Finance had on file a $1.20 billion analyst estimate for Q4 2021 Snap revenues. This estimate may be incorrect.
Companies that place more importance on growth than GAAP profit tend to be valued less when growth slows. Snap predicts a huge revenue growth slowdown. This explains the stock market selloff. What explains the slowing growth in revenue?