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Why Snap stock tumbled after Q3 earnings

Yahoo Finance's Emily McCormick breaks down the numbers to know from Snapchat's Q3 earnings report.

Video transcript

SEANA SMITH: A couple of earnings reports crossing the wires, Snap and Chipotle. Let's start with Snap because the stock is taking a massive hit after hours. Emily McCormick has that for us. Emily.

EMILY MCCORMICK: Well, Seana, as you mentioned, we are seeing shares of Snap tumbling in after hours trading. That stock down more than 26%, and that's after the company delivered a fourth quarter outlook that missed consensus estimates on both the top and bottom lines. Now Snap did post mixed earnings results for the third quarter, but investors are definitely looking through those and looking ahead to that disappointing guidance.

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But just to run through what the company reported for the third quarter, daily active users coming in at 306 million versus the 302.1 million expected. That, again, beating expectations and up 23% over last year, also growing from the 293 million posted in the second quarter of this year. Now, third quarter adjusted earnings were also a beat, coming in at $0.17 a share versus the $0.08 per share expected, although we did see third quarter revenue just a tick below expectations at $1.07 billion versus the $1.1 billion anticipated.

Now, again, for that fourth quarter outlook, Snap sees adjusted EBITDA coming in between $135 million to $175 million. And even on the high end, that was a big miss compared to Wall Street's expectations for $299.3 million. And then, in terms of fourth quarter revenue, the company seeing sales coming in at as much as $1.2 billion, also below estimates for about $1.35 billion.

Now, a little bit of commentary here about what might be driving some of these headwinds coming from the earnings release. CEO Evan Spiegel saying in a quote in that, quote, "We're now operating at the scale necessary to navigate significant headwinds, including changes to the iOS platform that impact the way advertising is targeted, measured, and optimized, as well as global supply chain issues and labor shortages impacting our partners. We will continue to focus on delivering strong results for our advertising partners and innovating to expand the capabilities of our platform and better serve our community."

Now, again, as we see this share price move, of course, sharply to the downside in late trading, should note that Snap shares had been up 50% so far in 2021 through today's close. So a lot of optimism had already been baked in, but clearly here, Wall Street disappointed by this report. Guys.