October 25, 2021 8:00 AM
 — 
3
 min

Snap shares plunge 27% on disappointing 4Q forecast

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Snap released Q3 earnings late last week. The company's revenue in the third quarter was $ 1.07 billion, up 57%. This is the first quarter for the company when its revenues exceeded $ 1 billion. At the same time, the indicator turned out to be weaker than market expectations, which had predicted revenue at $ 1.1 billion. Net loss in July-October decreased to $ 71.9 million from $ 199.8 million for the same period of the previous year. Loss per share fell to $ 0.05 from $ 0.14 on the average market forecast of $ 0.1. Snapchat had 306 million daily active users against a forecast of 301.8 million. Despite strong performance, the company's shares fell 27% on the back of a disappointing 4Q forecast.

TIKR:
SNAP

PRICE:
$55

TARGET PRICE:
$75

UPSIDE
36%

S&P 500
4,537(-0.10%)

WTI СRUDE
82,08(-0.61%)

10Y UST
1,676(+0.00%)

BITCOIN
$62,623(-2.87%)

The company's management is forecasting weaker-than-expected numbers for the holiday season, attributing this to supply chain disruptions and Apple's privacy changes. A software update released by Apple gives users more control over what data about their online activity can be received by companies, which is hitting advertisers. Users who have installed the latest iOS update on their iPhone are now able to block the tracking of their Internet activity for advertising purposes. Snap predicts that the company's revenue will be $ 1.165-1.205 billion in the current quarter. The consensus forecast for this indicator is $ 1.36 billion.

We have revised our estimate of Q4 revenue downwards and reduced our valuation of the company's shares from $ 96 to $ 75. We continue to maintain a positive outlook on the company's business and forecast that Snapchat's daily active user base will grow by an average of 7% per year from 2021 to 2026, driving revenue growth and higher margins over time. We also expect the company to continue to demonstrate strong growth in ad revenue, including from industries recovering from the pandemic.

Snapchat is a mobile-only platform somewhere in between a social network and messaging service that has evolved since its debut in 2011. SNAP launched as a one to one ephemeral messaging service that allowed users to take and send disappearing photos, videos, etc. and has since expanded its offering along with its use cases to include (i) one to many sharing via Stories, (ii) content consumption via its Discover platform, in which partners such as ESPN and Cosmo create premium content for the platform, (iii) chat functionality including video and audio calls and group chat, and (iv) creative tools such as lenses and Geo filters, just to name a few.

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