Could Snap Stock Rebound as Management Restructures?

Snapchat (NYSE: SNAP), continues to face fundamental issues and resorted to corporate restructuring during the quarter announcing the layoff of its Web3 team. Snapchat's downsizing caused shares to rise more than 7% during market hours as investors eagerly waited for the company to get back on track.Snapchat's management began considering a more sustainable business model and stated the following:

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"As a result of corporate restructuring, decisions have been made to terminate our Web3 team,"< /p>

Snapchat CEO Evan Spiegel said the following:

“Our second quarter financial results do not reflect the scale of our ambition”. "We are not satisfied with the results we deliver."

Last quarter revenue was up just 13%, and investors re-examined the company's future viability. As interest rates continue to rise, many tech companies that previously saw their stock prices rise to record highs have fallen into disuse. The stock is down more than 85% for the year, and things are looking increasingly circumspect for the tech sector in general.

Snapchat's revenue has faced challenges as advertisers have reassessed their investments in general. The ad-based revenue model has been under pressure everywhere, and Snapchat's management is scrambling to put things right, as issues like Snapchat's demographics, which lack the buying power to attract high-value advertisements, affect business growth

ARPU remains relatively low, and low penetration outside of the US leaves plenty of room for revenue growth. But fewer users have turned to Snapchat in markets such as China and Europe, where a mix of local cultures and options is clearly the top choice. The potential to take over European and Asian markets is what keeps investors attached to the stock, but it remains to be seen whether management will execute in these markets. Snap's valuation remains fairly reasonable with a current price-to-sales ratio of around 3.65 and with cash flow currently standing at around $260 million, the stock is unlikely to experience a significant decline. . The current downsizing is likely to improve cash flow, but the increase is unlikely to be large enough to result in a permanent solution. Snap can be slightly oversold and social media companies, in general, tend to be cyclical and sometimes fall out of favor quickly, as we've seen with a number of historical companies. And as competitors in the space have started to see users slowly drift away from their platform, Snap's management will also reevaluate its own future. Snapchat's under-penetration and user adherence is a positive sign so far. Snap also continues to improve its business model and has expanded its revenue streams, tapping into multiple corporate partnerships as it seeks to continue to make the business more sustainable. Partnerships and content strategy are not going to be easy considering that many competitors continue to struggle with their own content business as costs continue to rise and returns have not lived up to expectations. .

Analysts have predicted that growth could pick up in the next few quarters, but that depends on the recovery of advertising flow, which is unlikely given that a growing number of global companies are cutting advertising spend. While growth may not be as weak as it was in the previous quarter, it is unlikely to rebound to previous years' levels for a few more quarters. The downward trend in advertising spending should remain a problem for some time, at least until companies are more certain about the economic outlook.

Finally, rates are unlikely to peak until labor markets begin to show significant weakness or inflation declines, and for the foreseeable future Snap shares are likely to remain under pressure. The company's technical also points to a market that remains broadly bearish at the moment, although the put-to-call ratio remains bullish at 0.7. combined with a slowly rising RSI indicating that the stock is slightly oversold, but any bullish rally resulting from mean reversion should not last. But if the stock continues to fall, long-term investors may have the opportunity to enter the market.