Cathie Wood’s (pictured) Ark Invest bought 230,323 shares in Snap [SNAP] on 22 October, worth around $12.7m. The news coincided with a 26.6% drop in the Snap share price, and since then, the stock has fallen 5.3% to $52.20 on 2 November.
The sudden drop in the Snap share price, which is up around 33% over the last 12 months, had been due to it reporting third-quarter revenues of $1.07bn on 21 October, which missed $1.1bn forecasts. Average revenue per user of $3.49 was also short of $3.67 expectations.
The company revealed in its earnings report that privacy changes to Apple’s [AAPL] iOS devices had battered its advertising revenue numbers. The changes had made it harder for Snap – and other tech groups such as Facebook [FB] – to target adverts based on users’ browsing history.
“This shows the Achilles’ heel in Snap’s model,” Truist Securities analyst Youssef Squali said. “That is effectively a lack of massive first-party data, which is what you need to be successful in this business.”
Snapchat share price falls on revenue miss
“While we anticipated some degree of business disruption, the new Apple-provided measurement solution did not scale as we had expected, making it more difficult for our advertising partners to measure and manage their ad campaigns for iOS,” Evan Spiegel, Snapchat’s CEO, said.
He added that global supply chain interruptions and labour shortages were reducing the “short-term appetite to generate additional customer demand through advertising”.
The group warned that fourth-quarter revenue would come in between $1.16bn and $1.20bn, compared with $1.36bn analyst expectations.
Wood saw the revenue miss as a buying opportunity. She made her move, snapping up Snap’s battered-down stock via the ARK Next Generation Internet ETF [ARKW], taking its holding to just over 1 million shares as of 3 November. The Ark Fintech Innovation ETF [ARKF] also owns shares in Snap and held 639,658 shares.
With the Snap share price trading at a discount, analysts still rate the stock a buy. According to MarketScreener, the average target price for the stock is $75.82 – 45% higher than its price on 2 November.
Analysts' average target price for the Snap stock - 45% above its current trading price
The company has seen steadily increasing sales since 2017 and is moving into profitability for earnings per share this year, with it expected to double again in 2022.
The third-quarter results were solid, with its net loss improving 64% to -$72m and free cash flow of $52m, compared with -$70m from the same period last year. Daily active users were up 23% year-over-year to 306 million, while average revenue per user grew 28% to $3.49.
It is also recording stellar international growth outside of North American and Europe, with users hitting 130 million, up 49%. The company’s average revenue per user figure in this area is very low at $0.98, compared with $8.20 in North America.
Snap is also innovating with new technologies and offers augmented reality (AR) lenses for users in areas such as virtual fashion. The company launched a studio in late October to help brands launch AR ads and experiences. “The goal is to push the boundaries of what's possible in AR,” Jeff Miller, global head of creative strategy at Snap, said, according to Reuters.
“may have already fully penetrated its total super-fan user base, suggesting future revenue growth must come primarily from higher user monetisation, which adds risk to growth projections” - Needham analyst Laura Martin
However, Needham analyst Laura Martin, as reported by Kiplinger, remains cautious. She believes that Snap “may have already fully penetrated its total super-fan user base, suggesting future revenue growth must come primarily from higher user monetisation, which adds risk to growth projections”.