Source: franviser / Shutterstock.com
Snap (NYSE:SNAP) is getting ready to report earnings for the third quarter of 2022 after markets close. The social media platform initially rose ahead of earnings this morning though it has been on a downward spiral since noon. As of this writing, SNAP stock is down almost 1% for the day and shows no signs of a rebound.
However, this performance mimics that of many of its peers today. Meta Platforms (NASDAQ:META) has fallen over 1% today and Pinterest (NYSE:PINS) is also down about 1%. It hasn’t been a good day for social media stocks in general. And today’s Q3 earnings report will have implications not just for SNAP stock but for its entire sector.
SNAP has only shed 4% of its volume throughout the month but its performance has been highly volatile. As August 2022 ended, shares fell on rumors that the company planned on laying off 20% of its workforce. Alongside the layoffs, Snapchat also closed down multiple apps involving mapping and music. This didn’t inspire much confidence and even the regulatory probe into rival TikTok didn’t help SNAP stock catch any significant momentum. Now it is preparing to report earnings and expectations are low. Will that end up benefiting the beaten-down stock? Let’s take a closer look at what investors can expect.
SNAP Stock: A Bellwether for the Social Media Sector
As Snap gears up to report Q3 earnings, Wall Street takes are largely negative. Of the 34 analyst ratings on TipRanks, 23 rate SNAP stock as a “hold” while only 9 maintain “buy” ratings. Analysts from both Jeffries and UBS have lowered their price targets as the earnings report looms. However, low expectations are the easiest to beat, thereby giving Snap a decent chance of coming in ahead. As Barron’s reports:
Wall Street’s consensus estimates call for a net loss of 24 cents a share with revenue up 6.8% from a year ago to $1.14 billion.
If the company can surpass Wall Street’s predictions, it will boost shares at least temporarily. And if SNAP stock rises, its peers will likely move as well. Social media stocks are coming off an extremely difficult year as both macroeconomic and regulatory headwinds have made for a volatile industry landscape.
Some positive earnings news from Snap might help ease investor anxiety about the sector, giving its leading stocks the boost they need. Likewise, if the company fails to meet such low expectations, it will push all social media stocks down.
Update on the Snap Spectacles
One thing keeping Snap on Wall Street’s radar has been its work with smart glasses. Quartz recently predicted that this technology, centered around light-emitting diode (LED) glasses, will complement smartphones before ultimately replacing them. The outlet named Snap, Meta and Amazon (NASDAQ:AMZN) as the companies leading the smart glasses revolution. It notes Snap’s progress as an early pioneer of the new technology with its Spectacles. However, as Quartz adds, competing with larger peers may be an uphill battle:
While Snap was earliest to the smart glasses race among the three, and delivers some of the most advanced computer vision research and applications, the smaller scale of its platform will make competing with larger platforms difficult as smart glasses adoption takes off.
That said, the Q3 earnings report will likely bring an update on Snap’s progress on the Spectacles. After the cutting of multiple apps, Snap needs an exciting new product to keep both users and investors interested. It will be excellent for both groups if Snap can report growth from its smart glasses division, signaling to investors that progress is being made.
Are Operations Improving?
Above all, Wall Street is going to want to see that the company is running more efficiently. Ronald Josey of Citi made this explicitly clear when he placed SNAP stock on a 30-day watch list for a positive catalyst. The analyst notes that while he believes Snap has the potential for revenue increases if it is able to scale digital advertising operations, he doesn’t expect to become positive on the stock until he sees proof that operations are improving. Josey maintains a “hold” rating for SNAP stock and a bearish $10 price target.
What Wall Street really wants to see is evidence that Snap’s recent layoffs and restructuring are working in the company’s favor. The stock’s performance since August hasn’t given investors much reason to be optimistic. But if the Q3 earnings report shows improvement in key areas, it will demonstrate that operations have improved and are running smoothly.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.