Snap plunges 28% on Q3 sales miss; analysts worry if more pain is to come
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Snap (NYSE:SNAP) shares fell more than 28% in pre-market trading Friday trading as the social-media company reported its lowest sales growth to date, and analysts to wondered if there is more pain on the road ahead.
Morgan Stanley analyst Brian Nowak, who has an underweight rating, noted that Snap (SNAP) is "over reliant" on branded, less-proven advertising. Coupled with execution risk, increased competition and a strategic change, Nowak said there could be more pain to come for the Evan Spiegel-led company.
Nowak also noted that by not giving guidance for its fourth quarter, but providing some commentary around it, it seems that Snap's (SNAP) ad business is growing around 9% year-over-year, despite having an easy comparison to last year. Nowak estimated that Snap's (SNAP) ad business grew around 4% on a year-over-year basis in September, sped up in October, and is likely to decline between 3% and 6% year-over-year in November and December. 
Nowak lowered his revenue, EBITDA and free cash flow estimates for 2023 by 11%, 22% and 36%, respectively.
Snap's (SNAP) continued struggles sent shares of other advertising-centric businesses lower, including Pinterest (PINS), Meta Platforms (META) and Alphabet (GOOG) (GOOGL), but Nowak noted investors should not "over react" even if the weakness is something that can't be ignored.
"We're not denying the macro environment is uncertain, but Omnicom and Publicis continued to see robust ad demand this week," Nowak said. "And their visibility is significantly larger [and more] diversified than Snap."
Bank of America analyst Justin Post downgraded Snap (SNAP) to neutral following the third-quarter results, and said the the outlook suggests it has a "high macro exposure" going into 2023.
Post noted that the second-half "acceleration thesis" is not happening, as content time in the U.S. is down and the company is headed for a "difficult" first-half of next year.
Goldman Sachs analyst Eric Sheridan reiterated his neutral rating on Snap (SNAP) following the report, but noted that Snapchat is a "platform in transition" as it still looks to identify a future path based on augmented reality and media consumption. 
Sheridan said he expects Snap's (SNAP) shares "to be range bound for the short [and] medium term" as investors digest a new normal of depressed revenue growth at the company.
Prior to earnings, investment firm Citi opened a positive catalyst watch on Snap (SNAP) but remained neutral due to low visibility into the company's financials.
Analysts are largely cautious on Snap (SNAP). It has a BUY rating from Seeking Alpha authors, while Wall Street analysts rate it a HOLD. Conversely, Seeking Alpha's quant system, which consistently beats the market, rates SNAP a HOLD.