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Snap Falls on Layoff Announcement as Redesign Issues Persist
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Snap Inc. (SNAP - Free Report) is losing steam as concerns about its growth potential are rising.
The redesign of the Snapchat app has garnered significant negative response, which doesn’t bode well for the company’s advertiser base.
Moreover, celebrities like Rihanna are using nearest competitor Facebook’s Instagram to criticize Snapchat’s advertising practices. This has significantly dented its brand value.
Snap’s back-to-back layoffs have now come under scrutiny. The concern regarding the company seems to have aggravated with its current revelation to cut down 100 sales and advertising employees, after terminating 120 engineers in March.
In a recently filed 8-K, the company mentioned that it anticipates to save around “$25 million in 2018 and $34 million on an annualized basis” pertaining to the restructuring of the workforce.
We believe further cost cutting without any significant rise in top line may not be enough to boost profitability in 2018. The Zacks Consensus Estimate for 2018 is currently pegged at a loss of 53 cents per share, narrower than loss of 55 cents over the last 30 days.
Notably, shares of Snap plunged almost 9% to close at $14.46 on Apr 2. In the past year, shares have lost 35.3% against 33.1% growth of its industry.
Stiff Competition Hurts
Snap has been introducing features to make the platform more attractive but these are yet to contribute meaningfully to top-line growth. This is largely due to the highly competitive environment in which the company operates.
The user base of Facebook owned Instagram, its biggest rival, is way higher than Snapchat and thus presents a much larger canvas for advertisers.
Per market research firm eMarketer, U.S. user base of Instagram will grow 13% this year, while that of Snapchat’s is projected to rise 9%.
Snap should therefore focus more on creating innovative products in order to lure more users to the platform and increase engagement levels. The termination of so many engineers thus raises questions about its strategy.
Moreover, per a latest survey by Digiday, 42% of the respondents said that Snapchat was the most difficult platform for digital advertisements. Therefore, layoff of so many sales and advertising employees is alarming for a company, which is entirely dependent on advertising revenues.
Is a Rebound Possible?
In the first three quarters of 2017, Snap’s slowing user base and revenue growth rates posed major concerns for its stakeholders. However, the company reversed the decelerating growth trend in the last reported quarter, which led to a steep rise in its shares.
We note that the fourth-quarter results of the company were mainly driven by robust ad spending by large brands during the holiday season. Management forecast a slowdown in sequential growth for the current quarter.
We believe Snap’s inability to attract advertisers coupled with the latest uproar over redesign amid stiff competition from its well established peers remain a concern, at least in the near term.
Long-term earnings growth rate for Paycom and NVIDIA is projected to be 24.8% and 10.3%, respectively.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
Snap Falls on Layoff Announcement as Redesign Issues Persist
Snap Inc. (SNAP - Free Report) is losing steam as concerns about its growth potential are rising.
The redesign of the Snapchat app has garnered significant negative response, which doesn’t bode well for the company’s advertiser base.
Moreover, celebrities like Rihanna are using nearest competitor Facebook’s Instagram to criticize Snapchat’s advertising practices. This has significantly dented its brand value.
Snap’s back-to-back layoffs have now come under scrutiny. The concern regarding the company seems to have aggravated with its current revelation to cut down 100 sales and advertising employees, after terminating 120 engineers in March.
In a recently filed 8-K, the company mentioned that it anticipates to save around “$25 million in 2018 and $34 million on an annualized basis” pertaining to the restructuring of the workforce.
We believe further cost cutting without any significant rise in top line may not be enough to boost profitability in 2018. The Zacks Consensus Estimate for 2018 is currently pegged at a loss of 53 cents per share, narrower than loss of 55 cents over the last 30 days.
Notably, shares of Snap plunged almost 9% to close at $14.46 on Apr 2. In the past year, shares have lost 35.3% against 33.1% growth of its industry.
Stiff Competition Hurts
Snap has been introducing features to make the platform more attractive but these are yet to contribute meaningfully to top-line growth. This is largely due to the highly competitive environment in which the company operates.
The user base of Facebook owned Instagram, its biggest rival, is way higher than Snapchat and thus presents a much larger canvas for advertisers.
Per market research firm eMarketer, U.S. user base of Instagram will grow 13% this year, while that of Snapchat’s is projected to rise 9%.
Snap should therefore focus more on creating innovative products in order to lure more users to the platform and increase engagement levels. The termination of so many engineers thus raises questions about its strategy.
Moreover, per a latest survey by Digiday, 42% of the respondents said that Snapchat was the most difficult platform for digital advertisements. Therefore, layoff of so many sales and advertising employees is alarming for a company, which is entirely dependent on advertising revenues.
Is a Rebound Possible?
In the first three quarters of 2017, Snap’s slowing user base and revenue growth rates posed major concerns for its stakeholders. However, the company reversed the decelerating growth trend in the last reported quarter, which led to a steep rise in its shares.
We note that the fourth-quarter results of the company were mainly driven by robust ad spending by large brands during the holiday season. Management forecast a slowdown in sequential growth for the current quarter.
We believe Snap’s inability to attract advertisers coupled with the latest uproar over redesign amid stiff competition from its well established peers remain a concern, at least in the near term.
Snap Inc. Price
Snap Inc. Price | Snap Inc. Quote
Zacks Rank and Stocks to Consider
Currently, Snap has a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader technology sector include Paycom Software (PAYC - Free Report) and NVIDIA Corporation (NVDA - Free Report) , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.
Long-term earnings growth rate for Paycom and NVIDIA is projected to be 24.8% and 10.3%, respectively.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>