KEY POINTS

  • After last week’s drop in earnings, the stock has since recovered most of its losses.
  • Indications that the Federal Reserve is changing its approach also helped drive up stock prices.
  • Meta and Alphabet’s earnings reports show that the entire social media industry is in trouble.

What’s going on with Snap stock

Shares of Snap stock jumped this week, even though its earnings report last Thursday was not well-received.

After last week’s stock market crash, today’s stock surge may be due to investors thinking the dive was overdone. Additionally, some of the rebound could be from renewed hope that the Federal Reserve will slow down on increasing interest rates.

Other companies in the same industry, like Alphabet (NASDAQ:GOOG) and Meta Platforms (NASDAQ:FB), have recently had disappointing earnings reports. This confirms that Snap’s problems are primarily due to the current economic conditions rather than any specific issue with the company.

As of Thursday afternoon, the social media stock had risen 23.6%, recovering most of its losses from last week.

Why we care

On Friday, Snap‘s (NYSE:SNAP) stock took a nosedive of 28% after the company released dismal numbers from its third-quarter earnings report and stated that conditions could worsen in the fourth quarter. Total revenue only increased 6% to $1.13 billion, while adjusted earnings per share decreased 52% to $0.08. Moreover, according to generally accepted accounting principles (GAAP), it lost $359 million as it continued splurging on share-based compensation.

Although this week’s stock performance was weak, some investors see the growth potential. In addition to weak financial results, Snap also posted strong user growth with an increase of 19% in daily active users (to 363 million) or up 4.6% sequentially. This steadiness in usage shows that the company’s problems are due to macroeconomic conditions, not a sudden slowdown in use.

Hopefulness increased amongst investors as indications arose that the economy is starting to struggle under the weight of higher interest rates. Home-price growth decelerated faster than ever in August, according to the Case-Shiller index, which also showed that home prices hit their peak in June. The Bank of Canada raised rates less than expected, adding more fuel to the fire.

What now

Despite global market uncertainties, Snap Inc. must continue developing its business model. The company has responded to the crisis by laying off 20% of staff and shutting down operations for non-essential products. It also plans on closing its San Francisco office.

Snap has a good chance of bouncing back up once the economy improves if they can simplify their business model. So even though user growth has stalled, it would be wise to wait to write them off entirely.

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