Snap Inc Remains in the Throes of a Bear Market

Snap Inc (SNAP), the owner of the social media site Snapchat, remains in the throes of a bear market.  The price of Snap has tumbled by -87% from a record high in September of 2021.  It was the only U.S. company worth more than $100 billion a year ago that is now worth less than $20 billion.  Investors will look to Snap’s Q3 earnings later today to see if the company’s earnings have stabilized.

So much bad news is priced into Snap’s stock price that any sliver of optimism could spark a rally in the stock.  CFRA Research said that the “setup looks more favorable for bulls given price action in recent months as Snap’s earnings estimates have been coming down all year, and we expect a relatively conservative outlook when the company reports.”

Today’s earnings report from Snap will be the first from big internet companies that depend on advertising, so it will set the table for what investors can expect when mega-players such as Alphabet (GOOGL) and Meta Platforms (META) report earnings next week.  Social media platforms like Snapchat, Facebook, and Instagram have had to work around privacy rules that Apple introduced last year, making it more difficult to serve up ads to customers based on their online activity.

Social media stocks have been hammered by the same headwinds that have undercut the technology sector this year.  The Fed’s interest rate hikes have undercut the high-growth social media stocks, and advertising spending from companies has come under pressure due to fears of a global economic slowdown.

Over the past year, analysts have cut their 2022 revenue estimates for Snap by about -25%. According to Bloomberg data, analysts now expect revenue growth for Snap of +14%, which would be the company’s slowest ever.  After Snap reported dismal Q2 results back in July, at least 14 brokerage and investment banks have cut their recommendation on the stock.  Bright Trading said, "Snap has disappointed us so many times it’s almost expected that they’re going to disappoint again.  You lower the earnings bar, and they seem to find a way to get under the lower bar.”

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