Oh, Snap!
We're not talking about the family-friendly exclamation. We're talking about Snap (SNAP) , parent of the visual-message app Snapchat.
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Founded in 2011, this is the company that believes "the camera presents the greatest opportunity to improve the way people live and communicate."
Snap grew quickly but it recently has faced challenges, and the stock is down nearly 26% year-to-date.
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In February, the company cut roughly 10% of its about 530 employees, and in August the shares tumbled after Snap missed quarterly revenue estimates.
Things were looking better on Oct. 29, however, when the company posted better-than-expected third-quarter results.
Snap CEO cites tech improvements
Co-Founder and Chief Executive Evan Spiegel told analysts that during the quarter Snap "continued to make progress on our core priorities."
"We continue to deepen engagement with our content platform with a number of content viewers and total time spent watching content growing year-over-year," Spiegel said during the earnings call.
In September, Snap rolled out Simple Snapchat, a streamlined version of the app that declutters the home screen, removes the Snap Map and Stories tabs, and consolidates its navigation bar around three icons.
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"For Snapchatters, this updated layout offers a more personal, relevant, and easy-to-use interface," he said. "For Creators, Simple Snapchat unlocks greater discovery and enhances the ability for content to reach new audiences."
Spiegel said roughly 10 million people are using Simple Snapchat across dozens of countries.
"We are encouraged by this early progress as it reinforces our conviction that this user experience will further our goals of inspiring creation, enhancing communication, and delivering a more engaging content experience," he said.
As part of Snap’s push for augmented reality, Spiegel said, the company launched the fifth generation of Spectacles, its AR glasses powered by Snap OS, and introduced a series of generative AI innovations for its AR developer platform.
Highlights of Snap's Q3 earnings report
The company reported adjusted earnings of 8 cents per share, up from 2 cents a year earlier and beating the consensus estimate of 5 cents a share. Revenue rose 15% to $1.37 billion, edging ahead of Wall Street's call for $1.36 billion.
Spiegel said revenue was boosted by Snap's direct-response advertising business and the growth of the Snapchat+ subscription business.
Global daily active users totaled 443 million, compared with the consensus forecast of 441 million. Global average revenue per user came to $3.10, ahead of the consensus forecast of $3.09.
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Fourth-quarter earnings were forecast between $210 million and $260 million on revenue of $1.51 billion to $1.56 billion.
Analyst flags limited user growth at Snap
Several investment firms issued research reports following the earnings release.
Bank of America Securities analysts led by Justin Post boosted their price target for Snap to $14 from $13 and affirmed a neutral rating on the shares, saying "challenges remain."
The firm said that the results and outlook suggest Snap's ad growth continues to trail the sector, with Snap losing some of its share of brand spending to similar sized competitors and Facebook parent Meta Platforms (META) .
But B of A said Snap's direct-response solutions are improving, cost discipline has improved positive free cash flow, and the company might benefit in 2025 from simplifying its app and posting new ads in Snap and Maps.
Snap might also benefit from any disruption at rival TikTok, the short-form-video app that lawmakers on both sides of the aisle have targeted for a possible ban.
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In April, President Joe Biden, citing national-security concern, signed legislation giving Tiktok's parent, the Chinese tech company ByteDance, 270 days to sell the subsidiary.
Post said he reiterated his neutral rating on Snap due to limited user growth in high-value U.S. and European Union markets; slowing Snapchat+ subscription growth, near-term uncertainty about the app transition, and a premium valuation on the company's bottom-line metrics.
Yahoo Finance measures Snap's forward price-to-earnings multiple at 43.5.
JMP Securities lowered the investment firm's price target on Snap to $16 from $17 and reiterated an outperform rating on the shares.
Snap's third-quarter results were in line, with revenue slightly above consensus and Ebitda $32 million above consensus. The high end of Snap's fourth-quarter revenue guidance was in line with expectations, JMP said.
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Snap is moving cautiously as it rolls out Simple Snapchat to minimize any disruption to monetization, the firm's analyst says.
JMP is increasing the possibility that the Simple Snapchat rollout will be consistently delayed and that it will be less effective at driving engagement than previously believed, the firm said, according to TheFly.
Truist raised its price target on Snap to $14 from $13 and maintained a hold rating on the shares.
The quarterly results came in ahead of muted expectations while the fourth-quarter guidance was mixed, the investment firm said. Overall, the report reflects good traction in direct-response advertising and Snapchat+, offset by softness in brand advertising, Truist's analyst said.
Snap's changes to its ad products are starting to resonate with the growing roster of advertisers, but its execution remains uneven sequentially, Truist added.
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