Stock Story -
What Happened: Shares of social network Snapchat (NYSE: SNAP) fell 5.3% in the afternoon session after major indices declined, with the Nasdaq down 3%, while the S&P 500 fell by 1.7% following weaker-than-expected earnings from Alphabet (NASDAQ:GOOGL) (YouTube Advertising revenue missed estimates) and Tesla (NASDAQ:TSLA) (7% drop in auto revenue).
In recent weeks, tech giants, including Microsoft (NASDAQ:MSFT), Alphabet, Meta (NASDAQ:META), and Apple (NASDAQ:AAPL), have shed some of their year-to-date gains as a new market narrative—in favor of small-caps stocks—gains some momentum following the growing conviction that the Fed will start to cut rates in the second half of the year. Notably, the Russell 2000 index has gained 9% since the beginning of the month. The sentiment also benefitted from improved inflation prints last month, as the headline numbers edged closer to the Fed's 2% target.
Overall, the shift suggests investors are finding more reasons to hold positions in risk assets, especially small caps that tend to be more volatile.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Snap? Find out by reading the original article on StockStory, it's free.
What is the market telling us: Snap (NYSE:SNAP)'s shares are very volatile and over the last year have had 16 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 6 months ago, when the stock dropped 34.5% on the news that the company reported fourth-quarter results with revenue and average revenue per user (ARPU) missing analysts' expectations amid elevated expectations around changes in the direct response business. User growth was steady, with DAU (daily active users) ahead of estimates as net additions in Europe and the Rest of the World more than offset the customer attrition recorded in North America. This North America attrition is sure to ring alarm bells about competition, following Meta's very encouraging results. While next quarter's revenue guidance was in line, adjusted EBITDA guidance was well below. This shows that Snap's growth is coming at higher costs or less efficiency than expected. Moreover, the ARPU miss and the weakness in North America DAU indicate a challenging road ahead if the company aims to surpass expectations in the upcoming quarter.
During the earnings call, management hinted at potential growth investments in North America and Europe and expressed optimism about avoiding further declines in North America in Q1. Overall, this was a mediocre quarter for Snap as the market was likely expecting more, considering the strong result reported by Meta earlier in the season.
Snap is down 15.8% since the beginning of the year, and at $13.59 per share it is trading 22.1% below its 52-week high of $17.45 from February 2024. Investors who bought $1,000 worth of Snap's shares 5 years ago would now be looking at an investment worth $771.59.
