Snap plunges as much as 36% after slump in ad demand triggers earnings miss, Goldman downgrade

• Snap shares tumbled as much as 36% on Friday after a second-quarter earnings miss.
• Slumping ad revenue and a slowing economic backdrop hit the company's top and bottom lines.

Snap shares plunged by as much as 36% in Friday's pre-market following the social-media company's second-quarter earnings, which showed a slump in advertising revenue hitting its bottom line. Goldman Sachs slashed its forecasts after the disappointing performance.

Snap, which owns Snapchat, said it planned to slow hiring and expected slower revenue growth. It also did not provide any guidance for the upcoming quarters, as it said "forward-looking visibility remains incredibly challenging."

The company reported revenue of $1.11 billion in the three months to June. This marked a 13% improvement on the same quarter of 2021, but fell short of the consensus forecast of $1.14 billion, which is based on analyst estimates. Net losses deepened to $422 million in the quarter, from $152 million in 2021.

"While the continued growth of our community increases the long-term opportunity for our business, our financial results for Q2 do not reflect our ambition," Snap CEO Evan Spiegel said in a statement.

Snap also announced a $500 million share buyback program, but this did little to soothe investors' nerves.

Shares in the Snapchat parent were last down 35.9% at $10.46, having hit a session trough of $10.43, its lowest since March 2020. The stock has fallen by over 80% since hitting a record above $83 last October, and it's still 30% below its level when the company went public five years ago.

The technology company already issued a profit warning in May that stripped 40% off the stock in a single day. It cited changes to Apple's privacy policy that make it harder to sell targeting advertising, as well as a slowdown in ad demand. This is against a backdrop of an economy that is struggling with supply-chain squeezes, sky-high inflation, and labor shortages.

Investment bank Goldman Sachs said on Friday it would cut its rating on Snap stock to "neutral" from "buy," and slashed its 12-month price target virtually in half to $12.00.

"Our own industry checks over the past two months were muted but more optimistic than this earnings report - which leaves us wondering about advertiser vertical exposure, core platform user demographics and a mixture of experimental budget from less mature advertisers as potential drivers of the outsized deceleration from late April to July," Goldman's team of analysts, led by Eric Sheridan, said in a note.

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