Snap (SNAP) stock is due for some love this earnings season, if for no other reason than Wall Street already knows the story is bad.
Profit estimates on Snap are "washed out," RBC internet analyst Brad Erickson wrote in a recent note. He added that cost cuts also stand to get more appreciation from investors.
"I think Snap, in particular, has announced some cost cuts a couple quarters ago — pretty substantial cost cuts into 2023," Erickson said on Yahoo Finance Live (video above). "As we look through street models, I think we wonder if that's totally reflected, meaning that has the potential that earnings estimates need to move up directionally from here."
Despite cutting 20% of its workforce in 2022 in an effort to reach profitability, the social media outfit notched a lackluster third quarter that continued to put pressure on the stock.
Snap heaped the blame on an advertising slowdown and Apple's privacy changes for its missteps in execution while also warning that sales trends in the fourth quarter would get worse.
For the nine months ending Sept. 30, Snap had a net loss of $1.1 billion. A year ago at that time, Snap's net loss tallied about $510 million.
Snap shares are down 67% in the past year.
Erickson — who has a Sector Perform rating on Snap shares — believes that these circumstances may set the stage for earnings to beat analyst estimates this year as cost cuts begin to work their way to the bottom line.
"I think people are optimistic as we look towards maybe the second quarter and the second half of the year," the analyst said on high-growth internet stocks. "But I think, for the moment, you're going to hear a narrative of caution and headwinds, particularly as we start out 2023."
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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