Why Snapchat Stock Plunged

Snapchat (NYSE:SNAP) shook up investors when it admitted Apple’s (NASDAQ:AAPL) new privacy settings hurt quarterly results. SNAP stock fell by 26.59% on Oct 22. What did investors not like about its earnings?

Snap posted non-GAAP EPS of 17 cents. Revenue grew by 57.6% Y/Y to $1.07 billion. Investors sold the stock when Snap posted average revenue per user of $3.49. Analysts expected $3.63. Though valuations for SNAP are unfavorable at a price-to-sales of over 25 times, the company still posted strong revenue growth.

SNAP stock should not have lost 27% of its value on the continued business strength. Still, Snap has a market capitalization in the $90 billion range. A $1.07 billion revenue is not enough to avert the panic selling.

Apple’s privacy changes will hurt Snap’s advertising growth. This is a source of historical strength. The firm will need to adjust its ad platform to overcome the short-term headwind. Advertisers will adjust their ad budgets. They may turn to Facebook, Instagram, or Twitter. Conversely, Snapchat’s demographics are still favorable to the competition, so cutting ad spending would not make sense.

Your Takeaway

Bottom fishers could take advantage of SNAP stock falling by too much. Shares may rebound as investors dump DWAC (NASDAQ:DWAC), a SPAC that rose but is in danger of heavy profit taking.

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