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SNAP, Crackle And Poop: A Horrified Wall Street Reacts To Snapchat's Terrible Results

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by Tyler Durden
Friday, Jul 22, 2022 - 01:03 PM

For the second consecutive quarter, Wall Street analysts forgot that their job is to forecast the future (correctly), not react to stale, historical data (such as publicly available earnings), and in the hours after SNAP's catastrophic quarter, in which the company missed recently slashed guidance (and ended the practice of guiding altogether), we have seen no less than a dozen banks including Deutsche Bank, Goldman, Guggenheim, JPMorgan, Rosenblatt, Wells Fargo and so on, slash their price targets and downgrade the stocks to Neutral (except JPMorgan, which went to Underweight).

Here's the thing: next time - dear overpaid analysts - do the downgrade parade before the shitty earnings, not after. For example: as of July 20, one day before earnings, there were 34 Buy ratings, 7 Holds and just 1 Sell.

This morning, after the stock lost more than 30% of its value since reporting earnings after the social-media company “missed already-lowered expectations” as advertising demand softens amid continued headwinds including Apple’s platform changes, macro challenges and increased competition....

... the numbers have flipped to 20 Buys, 19 Holds and 2 Sells.

Groupthink penguin parade aside, what is even more remarkable is that even after the stock has collapsed about 90% from its all time high and is down more than 30% in the past 24 hours, there are still just 2 Sell ratings!

Courtesy of Bloomberg, here is a sampling of what the always one day late analysts have to say: 

JPMorgan (downgraded to underweight from overweight, PT cut to Street low of $9 from $24)

  • TikTok’s strong engagement and rapid monetization growth “are having an outsized impact on Snap’s business”
  • The pressure on Snap is greater than both Google & Meta, two bigger platforms that have more entrenched budgets, larger scale and generally higher return on investment

Atlantic Equities (downgraded to neutral from overweight, PT $13 from $18)

  • SNAP will likely “lose what has so far been a premium valuation in the sector”
  • While TikTok is not going to impact Snap’s core messaging offering, the rival is “eroding monetisable time spent”

Evercore ISI (downgraded to in-line, PT $14)

  • Expected “soft” results, however the magnitude of the weakness “surprised us”
  • All digital advertising platforms are likely to be negatively impacted by “macro challenges” with SNAP, PINS and TWTR likely to experience much greater impacts than META and GOOGL as “marketers seek to consolidate ad budgets with the largest, performance marketing-oriented platforms”

Truist Securities (downgraded hold from buy, PT $12 from $33)

  • Second-quarter results and the lack of current quarter forecast indicate that “headwinds from macro, platform changes and competition have worsened sequentially”
  • While these headwinds are likely going extend beyond SNAP, “it’s more impacted than larger peers given its size”

Stifel (downgraded hold from buy, PT $14 from $20)

  • Snap reported weaker 2Q revenue growth compared to expectations that were already “significantly reduced” following the negative pre-announcement in May
  • More importantly, there was no official outlook for 3Q provided “given the uncertain macro environment”

KeyBanc (downgraded sector weight from overweight)

  • “Snap’s results are rapidly diverging from the industry” as the company cites macro softness, however “comments from ad agencies suggested 1H and the start of 3Q were fine”
  • “Softness appears likely to persist” as ongoing weakness in retail, consumer packaged goods, digital entertainment and fin-tech budgets are likely to remain headwinds

Oppenheimer (downgraded to perform from outperform, removes $22 PT)

  • The company faces “too many headwinds for investors to underwrite stock in the medium-term”
  • Bloomberg Intelligence
  • The company seems to have been hit with “worse-than-expected ad- pricing pressure, driven by a pullback in spending as well as Apple’s privacy changes”
  • The company’s comments on 3Q revenue indicates that its “headwinds aren’t likely to abate in the near term”

MKM Partners (buy, PT $17)

  • Reiterating buy recommendation as brokerage is “constructive on Snap’s recent product/innovation track record” and continues to “see ARPU growth follow user growth”
  • Macro slowdown has continued and possibly weakened from May to June, and into July

Piper Sandler (neutral, PT $11 from $18)

  • The company said the deceleration occurred across both brand and direct response businesses
  • SNAP “faces a grim outlook near-term and it may take until 2023 “before growth gets back on track”

Barclays (overweight, PT $15 from $20)

  • Few companies will escape 2Q earnings season unscathed as “the digital ad market and overall pace of conversion has slowed markedly through each month in 2022”
  • Demand for advertising is coming down across the board, from established industries to high-growth sectors and across brand and direct response verticals

Citi (buy, PT $29)

  • Results affected by a combination of continued headwinds associated with Apple’s platform changes, lower overall advertiser demand due to macro challenges and increased competition
  • Snap’s lower advertiser count and scale likely exacerbated these issues and these challenges are likely to persist for the next several quarters

Third Bridge

  • Results “were disappointing, in large part because they missed expectations even after negatively preannouncing”
  • RBC Capital Markets (sector perform, PT $10 from $17)
  • There are signs of “further ad spending cuts still to come”

Cowen (market perform, PT $10 from $17)

  • The advertising business is trending flat, reflecting the impact from Apple’s ad-tracking changes, macro headwinds and rising competition
  • SNAP affected by lower demand across both brand and direct-response businesses, seeing “material slowdowns in a number of previously fast growing verticals”

Jefferies (buy, PT $20 from $25)

  • 2Q revenue “missed already-lowered expectations” and there is no visibility into 3Q results
  • The company needs to “gain share from established ad platforms like META and GOOG” in order to reaccelerate revenue growth

To summarize: here is what Wall Street's grossly overpaid 'experts' think now. Our advice: do the opposite of whatever their clueless consensus is.

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