Snap Faces A Challenging 1Q; Shares Drop 7.5% After-Hours

Snap shares fell 7.5% in after-hours trading on Thursday as the social media company outlined the challenges ahead in the first quarter of FY21. Snap stated that it experienced a loss in advertising momentum in the first two weeks of January as many of its brand advertisers put their advertising campaigns on hold due to the events at the US Capitol.

Snap (SNAP) also warned that changes in the iOS privacy policy could further impact the company’s advertising revenues in the first quarter. Currently, app developers like Snap use iOS’s identifier for advertisers (IDFA) – a string of letters and numbers on every iOS device to offer targeted advertising.

However, late last year, Apple (AAPL) announced changes in its privacy policy for its iOS app store that are likely to be implemented in the first quarter of this year. Under the changed policy, app developers like Snap would have to ask for permission to use a user’s IDFA for targeted advertising.

Snap noted that it is unclear what the long-term impact of these changes would be on its revenues. The company expects its revenues in 1Q to be between $720 million to $740 million and its daily active users (DAUs) to grow by 20% year-on-year to 275 million. Adjusted EBITDA could land between -$70 million to -$50 million in 1Q, according to management. (See Snap stock analysis on TipRanks)

The company’s 4Q non- GAAP diluted EPS came in at $0.09, ahead of analysts’ estimates of $0.07. Revenues were up by 62% year-on-year to $911 million, beating analysts’ estimates of $857.4 million. The company’s DAUs in 4Q also increased 22% year-on-year to 265 million.

Snap’s CEO Evan Siegel said, “…we’re proud of the strong results we delivered for our advertising partners this quarter and over the full year. We delivered our first full year of Adjusted EBITDA profitability and, as we look towards the future, we’re excited to build on our investments in augmented reality, mapping, and content to drive our ongoing growth.”

On Feb. 1, Monness Crespi Hardt analyst Brian White reiterated a Hold on the stock. White said, “We believe Snap’s improved operational execution and promising, new innovations, combined with a rebound in digital ad spending, position the company well fundamentally in 2021. That said, the stock’s sharp rise in both 2019 and 2020 have resulted in a less compelling valuation.”

The rest of the Street is cautiously optimistic about the stock with a Moderate Buy consensus rating. That’s based on 19 analysts suggesting a Buy, 3 analysts recommending a Hold, and 2 analysts suggesting a Sell. The average analyst price target of $56.93 implies a 2.4% downside potential to current levels.