Snap Stock Plunges as Q4 Revenue Misses Estimates Amidst Competition from Meta and TikTok

Social media platform Snap reported its fourth-quarter financial results on Tuesday, revealing that while its adjusted profit surpassed expectations, its revenue fell short of Wall Street targets. As a result, Snap stock plunged over 30% in after-hours trading.

Snap, the parent company of Snapchat, faces stiff competition in the social media space from industry giants like Meta Platforms (formerly Facebook), TikTok, and Alphabet‘s YouTube. The rising popularity of short-form video services has intensified the battle for consumer usage.

In the December quarter, Snap added 8 million daily active users, surpassing estimates of 6 million. This comes on the heels of adding 12 million daily active users in the previous quarter. Overall, Snap boasted 414 million active daily users by the end of 2023, marking a 10% increase from the previous year.

Despite beating profit estimates with adjusted earnings per share of 8 cents, compared to 14 cents in the same period the previous year, Snap’s revenue only rose by 5% to $1.36 billion, falling below the estimated $1.38 billion.

While Snap’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) came in at $159.1 million, exceeding analysts’ expectations of $110.3 million, the company’s revenue for the September quarter also grew by 5%, ending a two-quarter decline in sales.

Looking ahead, Snap provided revenue guidance for the current March quarter ranging from $1.095 billion to $1.135 billion, falling slightly below estimates of $1.12 billion. The midpoint of Snap’s revenue forecast is $1.115 billion.

In an effort to diversify its revenue streams, Snap has ventured into the world of subscription services with Snapchat+. As of December 2023, the service had attracted 7 million subscribers, up from 5 million at the end of September.

Ahead of the earnings release, Snap had announced plans to downsize its workforce by 10%, with approximately 5,300 employees as of Q3 2023. This restructuring plan follows a 20% reduction in staff in August 2022.

With regards to the financial markets, Snap stock currently sits at 17.90 per share, with an IBD Relative Strength Rating of 97 out of 99.

It’s worth noting that Snap’s struggles as a stock have been apparent over the past few years. Since early 2021, the stock has experienced significant fluctuations, resulting in a decline of 70% from its peak. Despite this volatility, Snap has managed to outperform the S&P 500 in 2023. However, the uncertain macroeconomic environment, including high oil prices and elevated interest rates, raises questions about whether Snap will continue to outperform the market in the coming year.

Snap’s Q4 financial results showed a mix of successes and challenges. While the company managed to exceed profit estimates and attract more daily active users, its revenue fell short of expectations. The intense competition from major industry players like Meta Platforms and TikTok, coupled with the evolving landscape of social media, poses further challenges for Snap moving forward.