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Why Snap, Facebook, and Pinterest Stocks Plunged Today

By Rich Smith - Oct 22, 2021 at 11:08AM

Key Points

  • Snap stock is down today -- but it actually beat earnings by a factor of two last night.
  • Problem is, revenue growth wasn't up to snuff, and Snap warned of further revenue weakness in Q4.
  • Wall Street blames Apple's iOS privacy changes for Snap's sales miss -- and warns this same factor could weigh on Facebook and Pinterest stocks.

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Snap beat earnings estimates last night -- but that's not really the point, is it?

What happened

Chaos struck the social-media sector Friday morning, with shares of Pinterest ( PINS -4.63% ) stock sliding 3.4%, Facebook ( FB -1.14% ) falling 5.5%, and Snap ( SNAP -2.34% ) 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.

Three red arrows going down and crashing through the floor.

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?

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Snap Inc. Stock Quote
Snap Inc.
SNAP
$46.79 (-2.34%) $-1.12
Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
FB
$306.84 (-1.14%) $-3.55
Pinterest Stock Quote
Pinterest
PINS
$35.84 (-4.63%) $-1.74

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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