SNAP Stock Plummets Premarket On Growth Concerns: Wall Street Flags High Competition From Instagram, YouTube

• Given Snap’s limited ad inventory and user count compared with rivals like Meta and Alphabet, advertisers have diverted additional dollars to applications such as Facebook, Instagram, and YouTube, the firm said. 
• Snap reported a hit of about $20 million to $25 million to advertising revenues due to the impact of the ​Iran war in the first quarter. 
• The company’s daily active users in North America also declined.

Shares of Snap Inc. (SNAP) plunged more than 10% in Thursday’s premarket trading hours despite beating Wall Street expectations on its first-quarter (Q1) earnings results.

The company reported a hit of about $20 million to $25 million to advertising revenues due to the impact of the ​Iran war in the first quarter, while its daily active users in North America also declined by about two million sequentially or 7% year-over-year.

Meanwhile, Morningstar lowered its price target on SNAP stock to $7 from $9, with a ‘Very High’ Uncertainty rating, driven by a reduction in growth estimates for both the European and North American markets.

SNAP’s Risk Factors

Morningstar said in its report that, despite Snapchat’s popularity, heavy competition in the social networking industry has hindered its ability to build a network effect among its user base.

Competition from incumbents and emerging platforms has squeezed ad revenue, as advertisers tend to allocate budgets based on scale, user engagement, and the return on ad spending. Given Snap’s limited ad inventory and user count compared with rivals like Meta and Alphabet, advertisers have diverted additional dollars to applications such as Facebook, Instagram, and YouTube, the firm said.

“We assign Snap a no-moat rating. Although Snap has moaty characteristics, including the foundations of a network effect, we lack confidence in the firm’s ability to effectively monetize its user base and generate excess returns on capital over the next 10 years,” Morningstar said.

SNAP Q1 Snapshot

The company reported revenue of $1.53 billion, a 12% increase year-on-year. Net loss came in at $89 million, compared to $140 million in the prior year.

Snap said it expected second-quarter sales of $1.52 billion to $1.55 billion, roughly in line with analyst estimates of $1.54 billion at the midpoint, according to data from Fiscal.ai.

SNAP Stock: Retail Stance

On Stocktwits, retail sentiment around SNAP stock improved from ‘bearish’ to ‘bullish’ territory over the past 24 hours amid ‘extremely high’ message volumes.

One bullish user said that if a company with Snap's revenue and user base were to go public, Wall Street analysts would value it at $30 billion to $40 billion. “This is absurdly low rn!!  Realistically it should be trading at $26 which is what the activist investors believe as well!!” the user said.

SNAP stock has declined nearly 25% this year.

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