Facebook’s next chapter just might make sense

Facebook’s next chapter just might make sense

Snap’s stock is down about 20% this morning, implying a significant drop in the social networking company’s value. In some ways, the stock’s decrease after earnings is a reflection of the company’s performance. Snap’s stock on the other hand only retreated to midyear levels and well above the historical price range; it was stuck in during its less profitable days.

Snap’s earnings release and subsequent selloff, however, have had an impact beyond the company’s own worth. Other social media businesses have taken a hit as well: Facebook shares are down about 5% this morning, while Twitter is down approximately 3%. It is a bad day for public social media businesses — and their private-market counterparts; even if we cannot see, their values fluctuate as much. Let us start with the why before we look at what this means for social enterprises in general. Because of its metaverse and planned name change, we will concentrate on Facebook at that time.

Facebook revamps its Business tool lineup following threats to its ad-targeting business
Facebook’s next chapter just might make sense

According to CNBC, Snap made $1.07 billion in sales in the most recent quarter, falling short of market forecasts of $1.10 billion. Snap’s sales increased by 57 percent year over year, while the company’s net loss shrank to just under $72 million in the quarter, down from just under $200 million the year before. Even better, as compared to the same quarter last year, Snap’s cash flow was significantly improved. Growth is a given. Is it possible to increase profitability? Check. Are you able to self-fund? Check. Despite this, the company’s stock price plummeted. 

Snap’s revenue forecast for Q4 2021 is “between $1.165 million and $1.205 million,” according to the company. The market, on the other hand, forecasted $1.36 billion in revenue for the current quarter. According to Yahoo Finance, the lowest analyst forecast for Snap revenue in Q4 2021 was $1.20 billion. Even that guess could be wrong for the company.

When growth slows, companies that are valued more on growth than GAAP profitability tend to swing dramatically. Snap is also expecting a significant slowdown in revenue growth. That explains the drop in stock prices. Nevertheless, why is the company’s revenue growth slowing?