"Snap Inc.'s stock jumped as much as 15% Wednesday after the social-media company confirmed a large reduction in jobs as part of a "broader strategic reprioritization" to slash costs and create positive free cash flow, and disclosed better revenue growth than expected."
"Shares in other social-media companies similarly jumped Wednesday morning, then pulled back a bit, as optimism for better third-quarter growth than expected rippled through the sector -- Pinterest stock was up as much as 8.8% and Meta stock rose as much as 6.8%."
Most important to Wall Street is the opportunity for the perpetually unprofitable social-media company to generate cash. With the cuts, some analysts believe Snap could break even on a free-cash-flow basis next year, with some caveats.
"We expect FCF break-even by mid-2023, albeit dependent on near double-digit '22E/'23E revenue growth, big IFs at present," Oppenheimer analyst Mark Zgutowicz wrote after The Verge first reported the magnitude of the layoffs, while dropping his price target to $12 from $15 but maintaining a "Buy" rating. "With that said, given the strength of Snap's [intellectual property] and near-lock on the Gen Z audience (Tik Tok aside), we suspect public/private interest is not far from the shares."
On the flip side of Oppenheimer is RBC with this analysis.
"Clearly the headline is Q3 growth tracking ahead of prior disclosure alongside the cash preservation obviously also helps," RBC analyst Brad Erickson wrote, while adding that Snap executives' inability to properly forecast results is an ongoing problem that could suggest weakness against rivals.
"We continue to struggle with the velocity & magnitude of results differing from the company's disclosed intra-qtr performance -- while this update is positive, to us, it once again reinforces the company's lack of visibility, which we think is a function of being a lower priority/more discretionary ad channel."
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