Why Snap stock cratered on Tuesday

The social media company issued a profit warning that sent ripples across Wall Street.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened

Shares of Snap Inc (NYSE: SNAP) plummeted on Tuesday, falling as much as 40.7%. As of 10:48 a.m. ET, the stock was still down 40.4%.

The catalyst that sent the social media company plummeting was a profit warning that set off alarm bells about the state of the economy.

So what

In a regulatory filing after the market close on Monday, Snap -- the parent of Snapchat -- warned that the economic picture had become much more uncertain, causing the company to rein in both its revenue and profit guidance for the second quarter.

In a statement, the company said:

Since we issued guidance on April 21, 2022, the macroeconomic environment has deteriorated further and faster than anticipated. As a result, we believe it is likely that we will report revenue and adjusted EBITDA below the low end of our Q2 2022 guidance range.

Management went on to say that the company remains "excited" about the "long-term opportunity" ahead. "Our community continues to grow, and we continue to see strong engagement across Snapchat, and continue to see significant opportunities to grow our average revenue per user over the long term."

Now what

Following the profit warning, analysts scrambled to adjust their models to fit the changing economic paradigm. There was a raft of outlook adjustments, as no fewer than a dozen of Wall Street's finest lowered their price targets on Snap.

Perhaps more telling, however, was the fact that none of the analysts downgraded Snap's stock, which is decidedly bullish. Truist analyst Youssef Squali's take was the most upbeat, telegraphing a long-term view.

He pointed out that while the outlook is disappointing, he expects the situation to be temporary, according to The Fly. He cited the company's strong fundamentals and the increasing adoption of its first-party data measurement by advertisers. Squali also said that the growing adoption of Snapchat products by its users, including Map and Spotlight, as well as the continuing growth of its daily active users as signs that the current situation is transitory. 

Taking a long-term view is difficult on days like today, but given the growing opportunity and underlying strength of its business, Snap investors will likely look back on today as a chance to buy shares on the cheap.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Danny Vena has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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