Snap Inc Stock (NYSE: SNAP) has been stumbling as investors worry over the new policies put in place by Apple in regards to making advertising through IOS more challenging.
In one month alone, Snap shares plummeted more than 25%, leaving investors wondering if the core advertising business on the product platform Snapchat is still viable over the long term.
This was all during mixed quarterly results that made investors feel very uneasy, which lead to many other social media company stocks such as Meta Platforms (NASDAQ: FB) and Twitter (NYSE: TWTR) falling dramatically in the process.
Let’s dive in to see what happened in the third quarter and analyse the outlook on Snap Inc Stock.
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Snap’s Recent Quarter
In Snap’s third quarter, they reported revenue of $1.07 billion, which represented an increase of 57% year-over-year. Alongside this, adjusted earnings per share came in at $0.17, beating the Wall Street forecast of $0.08.
However, despite the massive revenue growth, analysts weren’t pleased as they expected $1.1 billion in revenue throughout the third quarter.
The Average Revenue Per User (ARPU) also increased substantially to $3.49, demonstrating 28% year-over-year growth.
I think the massive swing downwards on Snap’s share price had significantly less to do with the current quarter, but more so the quarters following as investors consider the lasting effects of the new Apple IOS advertising hurdles. It currently makes advertisers less intrigued to spend capital until new systems are manufactured to optimize campaigns.
What’s Next For Snap Stock
Global Average Daily Active Users (DAUs) have been growing steadily every quarter, which is a key sign that the Snapchat platform is still wanted by millions of individuals, as it just recently surpassed 306 million. In just one year alone, this user base grew by 23% which is astonishing for a platform that has been out for 10 years.
What’s important to look for in the quarters following is the Average Revenue Per User (ARPU) as it will indicate if advertising has been dramatically affected on an average user basis. If growth persists, it’s a strong signal that Snap will likely get past these advertising changes rather quickly, which is a bullish signal for investors.
For the fourth quarter, Snap expects revenue to be between $1,165 million and $1,205 million which is over 25% growth year-over-year. This is still fantastic growth even despite the IOS policy changes.
Morgan Stanley remains a Bull on Snap Inc Stock
On November 24, Morgan Stanley analyst Brian Nowak lowered the banks price target on Snap to $65 however maintained an Overweight rating on Snap Inc Stock. Nowak remains upbeat on Snap’s addressable market for online ad revenue despite concerns regarding changes in Apples policies.
These adjustments include navigating The Identifier for Advertisers (IDFA) and App Tracking Transparency policies. The analyst dropped his Snap revenue forecast for 2022 and 2023 by 16% and 17% respectively.
Nowak brings up a strong point regarding changes in Apple’s policies, especially because they have a direct effect on Snap’s advertiser revenues. Despite this, Morgan Stanleys forecast represents a 38% on Snap Inc Stock.
Final Thoughts: Snap Inc Stock Forecast
Despite Snap facing sluggish revenues from the IOS policy update, they may adapt and find new routes to help advertisers. Over time, systems can be optimized efficiently, potentially eliminating the cause for concern in the future.
Even fourth-quarter guidance seems to be promising, with possible revenues growing 25% or more year-over-year. If Snap can deliver on these promises, I think it will bring confidence back into shareholders’ minds that the new advertising structure can be profitable.
Overall, the Snapchat platform is still gaining millions of users every quarter consistently, showing strength in the service that is offered. The next challenge for Snap management will be to adapt to the IOS changes, and bring back advertiser and investor confidence.
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The content above is strictly for informational purposes only and is not financial advice nor does it constitute a recommendation. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.