The Snap (SNAP) stock price crashed by more than 25% in extended hours on Thursday after the company reported weak quarterly results. The stock dropped to a low of $52.66, which was the lowest level since May 19th. This price was about 37% below the highest level this year. 

Snap earnings

Snap is the holding company that owns Snapchat, the popular social media company. The stock was struggling for a while as legislators in Washington focus on social media regulations. Investors were also concerned about how the company could be affected by Apple’s iOS 14 settings.

They were right to be worried as the company reported significantly weak guidance. The company’s revenue jumped by 57% year-on-year in the third quarter to more than $1.067 billion. This was the first time on record that the company’s revenue crossed the $1 billion level. 

The company’s strong results were driven by high user growth. In its lucrative North American market, the company’s daily active users grew by 6 million to 96 million. In Europe, it reached 80 million while in the rest of the world, the active users rose to more than 120 million. 

Apple IOS update

While the company’s revenue was good, it was below what the company had guided before. It was less by its guidance by about $3 million. It was also significantly lower than what most Wall Street analysts were expecting.

In the statement, the company blamed the weak performance to the relatively new Apple iOS update. The update brought a new feature that asks customers whether they want to be tracked or not. Most users chose not to be tracked. As such, this affects how the company targets ads. The changes will also affect companies like Google, Twitter, and Facebook. Their share prices also declined after Snap’s earnings.

The company made a net loss of $72 million in the third quarter as stock-based compensation rose to more than $120 million. In its guidance, the company said that its daily active users will rise to between 316 million and 318 million. It also expects that its revenue for the fourth quarter will be between $1.165 billion and $1.205 billion. 

Is Snap a good investment

The Snap stock price collapsed after its quarterly earnings. The changes introduced by Apple will hurt the company more than others. As such, there is a likelihood that its future earnings will be challenging.

However, Snap is still a strong social media company that captures a relatively young demographic that most advertisers love. Therefore, I believe that the company will find a way of reaching more advertisers and users in the coming months.

The biggest challenge for Snap is that it makes most of its money in advertising. Unlike Facebook and Google, it does not own any other brand other than Snap. Therefore, this fact could see it be more affected by regulations and Apple’s rules. Another challenge is that many of its users will likely move away from the platform as they age.

Snap technical analysis

The four-hour chart shows that the Snap stock price has been in a major sell-off lately. The stock had found strong support at the $70 level. It struggled moving below this level several times this year. 

The stock managed to crash below that level in extended hours after it published weak results. The stock also declined below the key support at $57.59, which was the lowest level on July 19th.

Therefore, I suspect that the Snap stock price will remain under pressure in the near term. This could see it drop below the key support at $50. 

The 4-hour SNAP stock price chart showing the crash on earnings.