Snap plunges as analysts say Q1 EPS was ‘broadly negative’

Snap (NYSE:) shares plummeted about 18% following the company’s reported Q1 results, with revenue of $988.6 million (down 7% year-over-year) missing the consensus estimate of $1.01 billion. Demand was disrupted by the changes the company made to its ad platform to drive more click-through conversions, and as advertisers adapt their measurement solutions to these new objectives.

Q1 came in at $0.01, compared to the consensus estimate of ($0.23). Daily Active Users rose 15% year-over-year to 383M. DAUs increased sequentially and year-over-year in each of North America, Europe, and Rest of World. Total time spent watching Spotlight content increased more than 170% year-over-year.

“We are working to accelerate our revenue growth and we are using this opportunity to make significant improvements to our advertising platform to help drive increased return on investment for our advertising partners,” said CEO Evan Spiegel.

The company didn’t provide formal guidance for Q2/23 revenue or adjusted EBITDA, noting that it expects to face continued disruption in demand related to the advertising platform changes initiated early in Q1.

The company’s internal forecast for Q2, which assumes DAUs of 394-395M, sees revenue at $1.04B, which represents a 6% decline year-over-year, and is below the Street estimates.

Goldman Sachs analysts said the company delivered “a broadly negative” earnings report. He cut a price target to $7 per share from the prior $8.

They said the after-hours selloff is a result of “a mixture of continued revenue headwinds (created by a mixture of macroeconomic conditions and direct-response platform changes) and mgmt. outlook of near-term margin pressure (particularly gross margins) driven by AI/ML investments and creator revenue share splits.”

“We see this set of results as disappointing vs investor expectations and expect SNAP as a stock to be range bound for the short/medium term as investors digest a mix of short -term depressed revenue trajectory and low visibility into medium/long term revenue growth trends,” the analysts said in a note.

Raymond James analysts are also cautious on SNAP stock following the soft Q1 results.

“We maintain our Market Perform rating as we view risk/reward as fairly balanced at current levels of ~3.9/7.0x our 2023 revenue/gross profit estimates given continued ad softness and limited near-term profits,” the analysts noted.

Additional reporting by Senad Karaahmetovic