Shares of Snap Fall After the Company Issues Weak Q4 Guidance

by | Oct 23, 2019 | Markets

Snap’s earnings and user growth beat expectations, but its shares still fell 3%.

Snap had momentum on its side as it into its third-quarter earnings this week. The company’s shares are up 150% year to date, and Wall Street considers the stock a moderate buy. 

However, even after releasing a mostly positive earnings report, the company’s shares fell slightly in after-hours trading. Let’s look at what happened during the third quarter and what this means for Snap going forward.

Snap’s earnings beat expectations

During the third quarter, Snap beat investor expectations across the board. The company’s revenue was $446 million, beating forecasts of $435.1 million. The company did lose money during the third quarter, but its losses were lower than analysts were expecting.

Snap’s global daily active users reached 210 million, beating forecasts of 207 million. The company also increased its average revenue per user.

This is the third straight quarter Snap has seen its user base grow, which is a significant milestone for the company. During the third quarter of 2018, Snap actually lost users, so it’s good to see that the company is back on track. 

Looking ahead to the fourth quarter, Snap CFO Derek Andersen said the company expects its revenue to fall between $540 million and $560 million. Investors were expecting revenue guidance of $555.4 million, so the lowered guidance came as a big disappointment.

Andersen said the company lowered its guidance because it will lose a week between Black Friday and the end of the year. He added, “That’s a potential headwind for us, and the guide reflects that.”

Will TikTok derail Snap’s progress?

Snap continues to do well in 2019, but it is far from the only social media company gaining momentum. In particular, the social media video app TikTok has become popular with teens, which is one of Snap’s primary user demographics. 

During the earnings call, CEO Evan Spiegel was asked about how the company would deal with competition from TikTok. Spiegel largely dismissed these concerns, saying that the value the two companies offer their users is entirely different. 

Overall, Spiegel was optimistic about Snap’s momentum and the direction the company is headed. He concluded, “We are excited about executing on the many opportunities in front of us.”