Snap Stock: Two Steps Forward and One Step Back In?

Social media platform Snap Inc. (NYSE: SNAP) stock was pummeled (again), falling over 20% after releasing its Q2 2023 earnings report. The company continues to lose money amid declining revenues despite growing its daily active users (DAUs) by 14% to 397 million. The company has been trying to take market share from competing app TikTok with its Spotlight video shorts service.

Snap is building out its artificial intelligence (AI) services with Microsoft Co. (NASDAQ: MSFT) and Open.ai with the launch of My AI chatbot, which users can converse with, use for research and advice, or even make restaurant and hotel reservations.

While other social media platforms like Meta Platforms Inc. (NASDAQ: META) and Alphabet Inc. (NASDAQ: GOOGL) are experiencing revenue growth and rising advertising spending, Snap continues falling behind social media's behemoths. Snap says it's focusing on AI investments and infrastructure that will pay off in the long run, familiar last words. The results seem like déjà vu and if so, then shares should recover as well.

The Positives

In the second quarter of 2023, Snap had some positive highlights. The highlight was the DAU growth of 14% or 50 million users for a total of 397 million users. DAUs increase sequentially year-over-year in North America, Europe and the Rest of the World (ROW). My AI chatbot is now considered (by Snap) one of the largest consumer chatbots today, as more than 150 million people have sent over 10 billion messages.

My AI Snaps

They launched My AI Snaps for Snapchat+ members. This lets subscribers send Snaps to My AI and receive a Snapback. Snap is also testing AI monetization connecting sponsored links to its community. Its Tik Tok-like, short video service Spotlight, had ads launched on it in the quarter as user growth rose 51% year-over-year to 400 million MAUs.

New Media Partners

The company onboarded new media partners, including U.K.-based ITV, ProSieben of Germany, Network 18 in India and The Walt Disney Co. Inc (NYSE: DIS) ESPN in the Netherlands. Snapchat+ premium subscription service has grown to four million paying members since its launch a year ago. Active advertisers grew 20%.

The Negatives

Snap continued to see average revenue per user (ARPU) shrink by 14% YoY in its largest market, North America. ARPU fell from $7.93 to $6.83 from Q2 2022 to Q2 2023. Europe saw a 2% drop from $1.98 to $1.93, while ROW saw a 3% rise from 96 cents to 98 cents. Global ARPU was $2.69. Adjusted gross margins also sank from 61% in Q2 2022 to 54% in Q2 2023.

Infrastructure spending, which includes AI implementation, jumped 12% to $277 million and 22% quarter over quarter. The company is generating lower sales, weaker margins and higher costs, but at least the MAUs are still climbing. 

Earnings Beat and Flat Guidance

On July 25, 2023, Snap released its second-quarter 2023 results for the quarter ending June 2023. The company reported an earnings-per-share (EPS) loss of 2 cents, excluding non-recurring items, beating consensus analyst estimates for a loss of 25 cents by 23 cents.

Revenues fell 3.9% YoY to $1.07 billion versus $1.05 billion consensus analyst estimates. Its DAU rose 14% YoY to 397 million users. The company stated that the total time watching its TikTok competing Spotlight content rose over 300% YoY.  Spotlight reached an average of over 400 million monthly active users in the quarter, up 51% YoY.

Snap noted that over 150 million users have sent over 10 billion messages since the launch of My AI, making it one of the largest consumer chatbots today.

Snap CEO Evan Spiegel commented, “In Q2, we made progress toward improving results for advertisers through machine learning model updates and infrastructure improvements, new ways of measuring and optimizing advertising spend, and new leadership for our go-to-market efforts.” The company issued in-line guidance for Q3 2023 revenues of $1.07 billion to $1.13 billion versus $1.13 billion consensus analyst estimates. DAUs are expected to reach 405 million to 407 million

Snap analyst ratings and price targets are at MarketBeat.

Weekly Rounding Bottom to Cup and Handle?  

SNAP has been working its way back from the prior earnings disasters. Shares managed to bounce from their $7.33 lows in October 2022, forming a rounding bottom and triggering a breakout through the weekly market structure low (MSL) trigger of $9.73. Shares climbed back to re-test the weekly cup lip line at $13.89 just before its Q2 2023 earnings release.

Shares rejected and then accelerated to the downside in reaction to its latest earnings miss.

SNAP fell back to $9.99 as the relative strength index (RSI) turned back down through the 50-band. If the swing low holds, it could form the handle back up to test the weekly market structure high (MSH) trigger at $12.67 and re-test the cup-lip-line at $13.89. If SNAP falls under the weekly MSL trigger at $9.73, then watch for a re-test of the rounding bottom low. Pullback support levels are $9.99, $9.73 weekly MSL trigger, $9.34 and $8.88.

Source MarketBeat