Snap stock price suffered a major reversal this week, erasing the gains made in the past few months. It plunged to a low of $7.5, down by over 27% from its highest point in July. It has dropped to the lowest level since April this year and by 57% from its 2024 highs.
Snap growth concerns are lingering
Snap, the popular social media company, is no longer seeing double-digit growth as it did years ago. This slowdown is largely due to the company facing substantial competition from other social media platforms, particularly Instagram and TikTok.
Snap stock price crashed this week as the company published its second-quarter results. The huge swing post-earnings are common for Snap.
Its results showed that its revenue rose by 9% in the second quarter to $1.345 billion. This revenue growth was driven by a 7% increase in the number of monthly active users, which rose to 932 million. The daily active users.
Snap’s growth is beeing driven by Spotlight, which is a feature that showcases short videos. In most cases, these videos are between 5 seconds and 1 minute long. The company noted that Spotlight now accounts for 40% of the total content time.
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While Snap’s users grew during the quarter, most of this acceleration is not coming from North America, its most profitable market. Indeed, North American users dropped by 2% to 98 million.
European users rose to 100 million from 97 million in the same quarter last year. The rest of the world user count surged by over 35 million.
Like other popular social media platforms, North America generates the most revenue per user. The ARPU jumped to $8.33 in Q2, higher than the global average of $2.87.
While the ROW users surged, the average revenue they generated declined to just $0.96 from the previous year’s $1.02. This happened because the surge in users did not incentivize more advertisers to join its platform.
Growth deceleration to continue
Analysts expect that Snap’s revenue and profitability momentum will decelerate. The average estimate among analysts is that its third-quarter revenue will be $1.48 billion, up by 8.7% Q3’24.
The management’s guidance is that its revenue will be between $1.47 billion and $1.5 billion. Therefore, as in the past, there is a likelihood that the actual result will be higher than the guidance since the management tends to be highly conservative.
A key area of priority for the management is Sponsored Snaps, where users pay a fee for their snaps to be promoted. In a statement, Evan Spiegel said:
“The rollout of Sponsored Snaps is definitely a very meaningful and profound evolution of our ad business. Because Sponsored Snaps really bring a native and highly performant ad placement to the most frequently used surface in Snapchat.”
Still, looking ahead, Snap stock price will likely remain under pressure in the coming months. For one, the company is still highly overvalued as it trades at a forward P/E multiple of 29, which is higher than that of Pinterest and Meta.
Snap stock price analysis
The daily chart shows that the Snap share price has plunged in the past few years. It has crashed from a high of $17.8 in 2023 to $7.5 today and is hovering at the lowest level since April 30th.
The stock has remained below all moving averages and is nearing the crucial support level at $7, its lowest point in April this year.
It also remains below all moving averages, while the Relative Strength Index (RSI) and the MACD have tilted downwards. Therefore, the stock will likely continue falling as sellers target the key support at $6.5.
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