Key Takeaways
- Snap stock fell 11% in a week after its third-quarter report, as advertising revenue grew just 4% and daily users missed estimates.
- Pinterest’s outlook was soft too, but Meta Platforms grew its ad revenue 26%, so Snap’s slowdown looks like its own problem.
- Snap turned a profit and more than doubled adjusted EBITDA, but the low multiple rests on earnings that leave out about $1 billion a year of stock pay.
- The fourth-quarter report in early February has to show ad growth picking up and a plan to hold the share count flat.
Snap (SNAP) stock is down 11% in the past week after a 14% drop on Nov. 5, the session after its Nov. 4 third-quarter report. Snap turned a $56 million profit, but advertising grew just 4%, in a quarter when Meta Platforms (META) grew its ad revenue 26%.
Pinterest (PINS) also guided fourth-quarter revenue below the $1.52 billion analysts expected when it reported on Oct. 29, a sign of a tough market for the smaller platforms. But Meta’s ad prices rose 14%, so advertisers are still spending. Snap just isn’t getting enough of it.
Brand ads did the damage
Costs were the good news: they grew just 1% while revenue rose 14% to $1.72 billion, so adjusted EBITDA more than doubled to $383 million. The ads were the problem. Direct response grew strongly, but brand advertising fell from a year earlier. CEO Evan Spiegel didn’t hide from it on Snap’s third-quarter call:
“Certainly, 4% ad growth is below our ambitions.”
Daily users missed too, at 495 million against the 499 million expected.
Cheap, until you count stock pay
Analysts expect revenue growth to slow to about 11% in 2027:
The midpoint of the fourth-quarter guide lines up with that consensus, so big estimate cuts look unlikely from here.
On those estimates, Snap trades at about 7x forward earnings, against nearly 12x on average over the past year. But those earnings leave out about $1.05 billion of stock pay this year, more than the $777 million of free cash flow Snap made over the last 12 months. That’s why diluted shares keep creeping up:
Shares plus stock awards reached 1.93 billion at the end of September, up from 1.86 billion a year earlier.
TIKR tracks 41 analysts on Snap. How many say “Buy”?
See the full breakdown of Buy, Hold, and Sell ratings on Snap, along with Wall Street’s revenue and earnings estimates, all in one place. More than 500,000 investors use TIKR to research stocks like this one. See Snap’s Analyst Ratings
February has to show ad growth
The legal bill is still open, too. On Nov. 2, Snap settled the teen-addiction case it was about to face at trial, but thousands of related suits are still pending.
At about 7x earnings, a lot of bad news is in the price, but cost cuts can’t fix 4% ad growth. CFO Doug Hott’s goal is “a stable fully diluted share count in 2027.” The fourth-quarter report, due in early February, should show whether Snap can fund that from free cash flow and get ad growth back toward double digits.
So what is Snap stock actually worth?
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
