Snap Inc. (SNAP) is a camera company. The company’s flagship product, Snapchat, is a camera application that helps people communicate visually with friends and family through short videos and images called Snaps. The company has approximately 319 million daily active users.
The stock has gained 8.4% over the past month based on a “Market Outperform” and a $42 price target received from JMP Securities. The expected removal of the popular short-video app TikTok from Google’s Play Store and Apple’s App Store also supported SNAP’s performance.
Brendan Carr, one of the Federal Communications Commission (FCC) commissioners, shared a letter via Twitter to Apple’s CEO Tim Cook and Alphabet CEO Sundar Pichai, pointing out that the reports and developments made TikTok non-compliant with the app store policies of the respective companies.
TikTok has been under fire lately after reports of its parent company ByteDance accessing U.S. user data multiple times as audio clips from numerous meetings held by the company were leaked.
Carr said, “TikTok is not what it appears to be on the surface. It is not just an app for sharing funny videos or meme. That’s the sheep’s clothing. At its core, TikTok functions as a sophisticated surveillance tool that harvests extensive amounts of personal and sensitive data.”
SNAP’s stock has declined 72% in price year-to-date and 78.9% over the past year to close the last trading session at $13.17. SNAP is currently trading 84.2% below its 52-week high of $83.34, which it hit on September 24, 2021.
Here’s what could influence the performance of SNAP in the upcoming months:
Mixed Financials
SNAP’s revenue increased 38% year-over-year to $1.06 billion for the first quarter ended March 31, 2022. The company’s adjusted EBITDA came in at $64.46 million, compared to an adjusted EBITDA loss of $1.70 million. Its free cash flow declined 16% year-over-year to $106.28 million. In addition, its adjusted loss per share came in at $0.02. Also, its non-GAAP net loss came in at $39.28 million, compared to its non-GAAP net income of $2.55 million.
Mixed Analyst Estimates
SNAP’s EPS for fiscal 2022 is expected to decline 57.2% year-over-year to $0.21, while its EPS for fiscal 2023 is expected to increase 166.2% year-over-year to $0.57. Its revenue for fiscal 2022 and 2023 is expected to increase 21.8% and 33.1% year-over-year to $5.01 billion and $6.67 billion, respectively.
Lower-than-industry Profitability
SNAP’s trailing-12-month net income margin is negative compared to the 4.89% industry average. Likewise, its trailing-12-month EBIT margin is negative compared to the 9.39% industry average. Furthermore, the stock’s 1.82% trailing-12-month Capex/S is 57.3% lower than the industry average of 4.26%.
Stretched Valuation
In terms of forward non-GAAP P/E, SNAP’s 65.15x is 299% higher than the 16.33x industry average. Likewise, its 4.36x forward EV/S is 130.5% higher than the 1.89x industry average. And the stock’s 5.55x forward P/B is 199.3% higher than the 1.85x industry average.
POWR Ratings Reflect Bleak Prospects
SNAP has an overall F rating, equating to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. SNAP has a D grade for Quality, consistent with its lower-than-industry profitability.
It has an F grade for Stability, in sync with its 1.19 beta.
SNAP is ranked #60 out of 66 stocks in the F-rated Internet industry. Click here to access SNAP’s Growth, Value, Momentum, and Sentiment ratings.
Bottom Line
Despite the recent developments driving SNAP’s stock price over the past month, the stock is currently trading below its 50-day and 200-day moving averages of $17.06 and $38.03, respectively, indicating a downtrend.
Although a ban on a competitor like TikTok may benefit SNAP, it is trading at a stretched valuation, and its profitability is lower than its peers. So, the stock could be best avoided now.
How Does Snap Inc. (SNAP) Stack Up Against Its Peers?
SNAP has an overall POWR Rating of F, equating to a Strong Sell rating. Therefore, one might want to consider investing in other Internet stocks with a B (Buy) rating, such as Yelp Inc. (YELP), trivago N.V. (TRVG), and Travelzoo (TZOO).
SNAP shares rose $0.22 (+1.67%) in premarket trading Friday. Year-to-date, SNAP has declined -72.00%, versus a -19.84% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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