Earnings Outlook: Snapchat is about to play the canary in social media’s coal mine

by | Oct 17, 2022 | Stock Market

The last time Snap Inc. reported quarterly results, the roof caved in and its shares lost a quarter of their value. Slackening digital advertising and warnings of deep cost cuts will do that to a stock. But Snap’s
SNAP,
+6.01%
conundrum was merely a prelude for similar troubles at Facebook parent company Meta Platforms Inc. 
META,
+5.74%,
Twitter Inc. 
TWTR,
+0.57%,
 Pinterest Inc. 
PINS,
+5.53%
 and, to a lesser extent, Alphabet Inc.’s 
GOOGL,
+3.53%
 
GOOG,
+3.70%
Google. Each is caught in a vice grip of inflation, a war in Ukraine and a looming recession, which combine to make for a dismal near-future for online advertising.

When Snap reports its fiscal third-quarter results Thursday, analysts expect more of the same: Little good news, and a warning for other companies set to follow with their own earnings. “Snap is the worst-performing stock in our coverage universe thus far in 2022,” Brian White of Monness Crespi Hardt said in a note Monday. “Moreover, we believe the darkest days of this economic downturn are ahead of us.”  In a chilling note Oct. 5, Barclays analyst Ross Sandler called the digital ad market “soft but stable” but warned growth rates are likely to continue to slacken and “possibly bottom” in the first half of 2023. “Buy-side expectations appear to be very low for flagship names like Google and Meta based on client conversations, so there may be a little room for better-than-feared results,” Sandler wrote when describing Snap’s precarious state. “Our framework remains unchanged that digital advertising growth is likely to remain well below normal sequential trends for the next several quarters as marketers adjust budgets to the new economic reality.” Accordingly, Truist Securities analyst Youssef Squali said he is adjusting estimates for Snap, Meta, Google and Amazon.com Inc.
AMZN,
+6.45%
to “reflect ST headwinds from a strengthening US$, and higher probability for an economic recession in 2023.” For more on Amazon’s advertising business: Amazon is becoming an advertising giant “We’re now baking in a mild recession in 2023, which should pressure growth, but strong cost containment should help protect margins,” Squali said in a Sept. 28 note that maintained a hold rating and price target of $12 a share. “We believe GOOGL and AMZN are best positioned to withstand current turbulence and emerge stronger from it.”What to expect Earnings: Analysts surveyed by FactSet on average expect Snap to report a loss of 24 cents a share for its third quarter, down from a loss of 5 cents a share in the same quarter a year ago. Contributors to Estimize — a crowdsourcing platform that gathers estimates from Wall Street analysts as well as buy-side analysts, fund managers, company executives, academics and others — are projecting an adjusted loss of a penny a share on average. Revenue: Analysts on average expect Snap to report $1.13 billion in third-quarter revenue, relatively flat from $1.07 bi …

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