Snap Stock Swings Wildly On Revenue Rebound, Warning About War's Impact On Advertising

Snap, the parent company of Shapchat (SNAP), reported a 5% increase in revenue for the third quarter on Tuesday. This broke a string of consecutive revenue declines. Snap's stock surged after-market, but investors quickly gave back those gains once they digested company commentary.

Snap has declined to provide any formal guidance on the current quarter. Snap reported that some advertisers had paused their campaigns due to the Israel-Hamas conflict.

Snap's third quarter ended Sept. 30 reported an adjusted profit of 2 cents a share on revenue $1.19 billion. According to FactSet, analysts expected Snap to report an adjusted loss per share of 4 cents on $1.11 billion in sales. According to generally accepted accounting practices, the company reported a loss of $368 million. This is up from $360 millions last year.

Snap's revenue also increased by 5% compared to the same period in last year. This marks an end to a string of revenue declines.

Snap stock was up nearly 20% in the first report, but then fell sharply. In recent after-hours trades, shares were trading at around 9.76. Snap shares had gained 8.5% in the past year prior to its earnings report on Tuesday.

Snapchat Daily Active Users Increase

Snapchat has 406 million active daily users, an increase of 12% over the same period in 2013. According to FactSet, analysts predicted that the company would have 405 million active monthly users.

In a letter sent to investors, Chief Executive Evan Spiegel stated that the company had been "cultivating revenue sources to diversify topline growth in order to build a stronger business."

Spiegel stated that Snapchat+ had more than 5,000,000 subscribers in the last quarter. Snap users pay $3.99 a month for early access to app and feature updates.

Snap, based in Santa Monica, Calif. also sees stronger growth outside of the U.S. North America revenue decreased 3% over the past year, to $786.2 millions. While European sales rose 24% to 200 million, rest of the world revenue increased 30% to 202 million.

The War in the Middle East Brings More Uncertainty

Snap has declined to give a formal forecast for the current quarter. The company stated that the war in the Middle East made it unwise to give formal guidance.

The company said in its earnings release that "we observed pauses of spending on a large number primarily brand-oriented ad campaigns following the start of the Middle East war, and this was a headwind for revenue quarter-to date." While some of these campaigns are now back in action and the impact on revenue has been partially reduced, we continue observing new pauses. The risk that these pauses will persist or grow in magnitude is still present.

"Internal forecasts" still predict Q4 sales of between $1.32 and $1.38 billion. FactSet polled analysts who expected $1.34 billion.

Recent Boost in SNAP Stock

Snap stock's recovery has not been as strong this year compared to its social media peers Meta (META), and (to a lesser degree) Pinterest (PINS).

Snap's stock did gain some traction in the weeks leading up to its earnings announcement. Shares rose more than 10% Oct. 16 after The Verge published an internal email from Spiegel, which included lofty 2024 goals.

Snap stock has fallen nearly 90% since its peak in September 2021.

According to IBD Stock Checkup, Snap had a low IBD Composite rating of 59 points out of 100 prior to earnings. The shares have a Relative Strength rating of 42. This means that SNAP has performed better than 42% of other stocks over the past 12 months.