What happened
Chaos struck the social-media sector Friday morning, with shares of Pinterest (PINS +0.07%) stock sliding 3.4%, Facebook (FB +1.81%) falling 5.5%, and Snap (SNAP +0.17%) collapsing 23% through 10:15 a.m. EDT. You won't be surprised to learn that it's the hardest hit of these three -- Snap -- that's the cause of the collapse.
So what
Last night after close of trading, Snap reported its Q3 2021 financial results. On the face of it, things weren't horrible. Analysts had forecast that Snap would report $1.1 billion in revenue for the quarter. While Snap's number -- $1.07 billion -- missed that target, the miss was minor.
Moreover, Snap reported a $0.17 per-share adjusted profit, more than twice Wall Street's forecast of $0.08. Daily active users of the social network grew 23% year over year, revenues rose 57%, and "non-GAAP diluted net income" was up 17-fold in comparison to last year. The company even reported positive free cash flow of $51.7 million.
That's the good news. Now here's the bad.
Image source: Getty Images.
When calculated according to GAAP, Snap didn't earn a profit at all last quarter but lost $0.05 per share. And revenues, which missed expectations, even if only by a small amount, look likely to continue growing more slowly than expected. Snap's guidance for Q4 -- no more than $1.21 billion in revenue -- fell 11% short of Street expectations.
Now what
All of this explains why investors are selling off Snap shares hard this morning. But why are Facebook and Pinterest falling, as well, even if by smaller amounts?
Consider this: Snap's weak revenue number in Q3 and weak forecast for Q4 sparked a series of price-target reductions on Wall Street -- more than a dozen at last count, according to a tally by TheFly.com. Analysts described the report as "mixed," "disappointing," and "worse than virtually anyone had expected." Crucially, they blamed the miss and guidance alike on "Apple's ... iOS privacy changes and supply chain disruptions," with MKM Partners blasting "Apple's unreliable ad-tech tools," and Jefferies warning that this problem "could weigh on revenue growth for at least the next two to three quarters."
Piper Sandler, in particular, pointed out that the problems Snap encountered last quarter and are continuing into Q4, "raise the level of uncertainty and may worsen before workarounds take hold," potentially imperiling revenue growth at other app-based companies that are popular on the iPhone, such as Facebook and Pinterest.
With this new complication added to the uncertainty surrounding Pinterest's fate as an independent company, for example, and the ongoing "Facebook Files" scandal that is plaguing Facebook, is it any wonder investors are nervous?
