Friday's Headlines: Another Poor Quarter For Snap

Friday's Headlines: Another Poor Quarter For Snap

Here were the biggest movers in the MyWallSt shortlist this week:

Moving Up ⬆️

Cloudflare (NET) +17.4%

Netflix (NFLX) +16.6%

Snowflake Inc. (SNOW) +14.2%

Shopify (SHOP) +14.1%

ShotSpotter (SSTI) +13.9%

Moving Down ⬇️

Ericsson (ERIC) -12.4%

Trupanion (TRUP) -9.6%

Baozun (BZUN) -8.5%

Sea Limited (SE) -7.2%

Core & Main (CNM) -7.0%

 

Snap Plunges on Another Poor Quarter 📉

Shares of Snap Inc. fell almost 25% in extended-hours trading on Thursday after the social media company reported a weaker-than-expected third quarter.

Revenue came in at $1.13 billion versus $1.14 billion expected, while net loss was $360 million — including restructuring charges of $155 million — compared to $72 million in the prior year. Interestingly, daily active users (DAUs) increased by 19% year-over-year and beat estimates, coming in at 363 million.

The disconnect between revenue, profit, and user growth continues a trend that Snap began at the beginning of the year. Thanks to Apple’s privacy updates, worsening macroeconomic conditions, and increasing competition, Snap has been unable to bring in advertiser revenue with the ease it once did. To this end, average revenue per user (ARPU) fell 11% to $3.11.

According to management, things are unlikely to improve in the fourth quarter. Revenue will likely continue to decelerate as the period “has historically been relatively more dependent on brand-oriented advertising revenue”. The company declined to give concrete guidance.

Snap and its CEO Evan Spiegel now have the difficult task of righting the ship despite the present climate. To shore up the company’s stock price, which has fallen more than 90% this year, the board authorized a $500 million stock repurchase. This is the second buyback of 2022.

To combat declining revenue, Snap launched Snapchat+, a paid subscription service, in Q2, while expenses have been decreased via layoffs and project cancellations. Snapchat+ has achieved more than 1.5 million subscribers but these have not sufficiently replaced lost advertiser revenue.

Snap is the first social media company to report during earnings season and is often considered a bellwether for the wider industry. For this reason, Meta and Pinterest are also trading lower in pre-market.

 

Instacart Pulls Back on IPO Plans 🛒

In a sign of how turbulent the financial markets currently are, the delivery company Instacart has reportedly nixed its plans to go public later this year.

As reported by The Wall Street Journal, CEO Fidji Simo wrote a memo yesterday in which she said it was “highly unlikely” that the company would list before the end of 2022, citing the lack of other tech companies going public in recent times as an example of the hostile market.

“The markets still remain closed for new IPOs, which is why there has not been a tech IPO in the last 10 months… we do not need a perfect market, we’re just looking for an open market window.”

Having confidentially filed to go public with the SEC earlier this year, the company appeared bullish on floating before the end of 2022 as recently as July, when Simo called it one of her “top priorities”. The performance of Instacart appears pretty solid too in comparison to its industry compatriots, with revenue growing more than 40% from a year ago and gross profit increasing more than 45% year-over-year in the last quarter.

However, according to data on stockanalysis.com, there have been just 167 IPOs on the U.S. markets this year so far, which is an 80.1% drop from the same time in 2021, which had 839 IPOs by this date.

What’s more, with Instacart already having cut its private valuation numerous times down to $15 billion — which is a far-sight off the $39 billion it was getting in March 2021 — it seems prudent that the company does not want to submit itself to the vagaries of the public markets.

 

Ericsson Stock Falls On Earnings Miss 📡

Shares of Ericsson (ERIC) fell more than 15% yesterday after the company reported a miss on earnings for the last quarter, with matters then made worse thanks to increased criticism from an activist investor firm.

Reporting on its fiscal third-quarter on Thursday morning, Ericsson posted revenues of 68 billion Swedish crowns ($6.02 billion), up more than 20% from the same time last year and beating analysts' estimates of 66.25 billion crowns ($5.8 billion).

The disappointment came in the company’s earnings, however, which fell to 7.1 billion crowns ($633 million) from 8.8 billion crowns ($779 million) a year earlier. Gross margin also fell from 44% to 41.4%.

On the earnings call, management blamed higher component and logistics costs for this contraction in earnings. In response, CEO Börje Ekholm said:

“We are also simplifying operations across the company to be proactive in reviewing options to reduce costs.”

Soon after the results were published, activist investor firm Cevian Capital AB — who owns a 5% stake in the company — branded the quarter “disappointing” and called on the company to “drain the swamp of losses.” This is likely to put even more pressure on management, especially with Ericsson stock now sitting at 4-year lows.

Ericsson is a Swedish multinational networking and telecommunications company, offering services, software, and infrastructure to telecommunications operators. Started as a family business in 1876 in Stockholm by Lars Magnus Ericsson, the company now has roughly 60,000 patents and is considered by many to be an investment in the future, with networks, digital services, and managed services that cover 5G infrastructure, IoT technology, mobile edge computing, autonomous networks, and network security.

Sign up for free to continue reading.