Market Insider

Snap shareholders get burned, but broader market will shrug it off

A stuffed ghost rests on a trader's screen above the floor of the New York Stock Exchange after Snap listed its IPO in New York, March 2, 2017.
Lucas Jackson | Reuters

Investors in the hot tech IPO Snap may feel burned, but the broader market is likely to look past its earnings bungle Thursday morning.

Big retailers Macy's and Kohl's report ahead of the opening bell. Both department store chains may discuss store closings and weaker sales. Traders will be listening to see whether the retailers' comments are shaped just by the industry's structural issues of too much square footage, or by a weakening of the consumer. Nordstrom reports after the closing bell.

But Snap may be the most talked about, after debuting in March as the hottest tech IPO since Alibaba. Its stock plunged more than 23 percent in after-hours trading Wednesday, after its revenues missed estimates and it reported slower than expected user growth. The price was at $17.68 in late trading, just above the $17 IPO price.

"I would be very surprised if people construed the aftermarket today or premarket trading [Thursday] in Snap as any kind of harbinger of broader market activity to come," said Scott Kessler, director of equity research at CFRA Research. "I think people understand that this is a very different kind of company and it's really hardly a bellwether either in its specific category of choice. I don't think what they communicated is going to be viewed as an issue for other companies. Snap clearly seems to have had some issues from a growth perspective. We'll see if that's corrected."

Snap reported a $2.2 billion loss, dwarfing the $104.6 million loss a year ago. Snap reported revenues of $150 million, while analysts expected $158 million.

Snap is the parent of social network Snapchat, and its earnings debacle came in its first results announcement as a public company. This is not unusual for a new social media company. Stocks like Facebook and Twitter fell an average of 14 percent one day after their first public earnings report, according to MKM Partners.

"They highlighted that they upgraded and updated their Android app which has been somewhat challenging for them," Kessler said.

Snap also reported 166 million daily active users while the market expected as many as 168 million or even more, Kessler said.

"Its miss wasn't Draconian, but they missed by expectations that could have been reset during the course of the quarter," said Art Hogan, chief market strategist at Wunderlich Securities.

Hogan said the company is going through rookie growing pains. "It's being punished because it didn't act like a publicly traded company. It acted like something cool my kids like to use. It's a cruel world out there."

Kessler said the company's conference call was much more positive than what was being reflected in its stock price, and he noted the stock did not rebound during the late afternoon call. Snap has traded as high as $30 since going public.

"I think this really comes down to the seemingly targeted and relentless competition from Facebook. It's really hard not to think about Facebook and everything they've been doing in the last six to nine months hasn't had a pretty negative impact on Snap's growth trajectory over that period of time," he said. Snap CEO Evan Spiegel laughed on the earnings call, when asked if he was scared of Facebook, and commented that the company's overall strategy is to deliver creativity.

Facebook stock floundered in its early days.

"I think there are true believers that will think about Facebook at this time five years ago and remember how the stock couldn't get out of its own way. People are now trying to figure out whether Snap is going to be Facebook or is it going to be Twitter, and I think people are leaning toward the latter," Kessler said. "The difference between Facebook and Twitter, is the difference between a bellwether and an also ran."

As for the department chains reporting earnings Thursday, Hogan said they will be hard pressed to sound upbeat.

"A larger hurdle to cross is for these traditional retailers to say something enthusiastic," he said. Retail chains are being pinched by online shopping and are being forced to shut down stores and in some cases declare bankruptcy. Hogan said he expects to hear a lot of excuses for weaker sales, including weather and the late Easter holiday.

Other earnings expected Thursday include BT Group, Brookfield Asset Management, Teva, and Nissan.

Weekly jobless claims and PPI producer inflation data are both reported at 8:30 a.m. ET.

The Bank of England holds a rates meeting, and G7 Finance ministers meet in Italy. OPEC also releases its monthly oil report.

Disclosure: NBCUniversal, the parent of CNBC, is an investor in Snap.