Snap Inc.
SNAP
stock is one of countless covid standouts that’s seen a large chunk of its pandemic gains disappear. Snap really started to tumble after its Q3 earnings release in October when the company warned Wall Street that Apple’s privacy changes were negatively impacting business.
The worries are legitimate and impact many other mobile app-focused businesses. That said, should investors start to think about possibly buying Snap stock with its Q4 fiscal 2021 financial results due out on Thursday, February 3?
Snap Stumbles
Snap shares plummeted roughly 20% in a day following its Q3 earnings release in October. The drop hinged mostly on changes to Apple’s
AAPL
privacy policies that have made it far more difficult for its advertisers to “measure and manage their ad campaigns for iOS.”
Snapchat, which is fueled by digital ads, is working on various efforts to help its clients track consumer engagement and other crucial metrics in the face of Apple’s opt-in features. At the same time, some analysts are worried about increasing competition from TikTok, especially with Snap’s younger user base.
SNAP shares are down roughly 55% since its last earnings release, 60% from its September records, and 30% in 2022. The fall sent Snap stock to levels last seen in October 2020—prior to a huge surge. Luckily, some investors have started to buy up some beaten-down growth stocks over the last several sessions, including Snap.
Snap is up roughly 15% off Friday’s lows and closed regular trading Monday at $32.54 per share. The recent run has lifted it out of over oversold RSI levels (30 or under) of 15 to 34.
Plus, its Zacks consensus price target represents 120% upside to its current levels. The drop has also recalibrated its valuation picture. And even with all of the headwinds and the selling, Wall Street remains largely high on Snap, with 14 of the 21 brokerage recommendations Zacks has at “Strong Buys” and nothing below a “Hold.”
Image Source: Zacks Investment Research
Other Fundamentals
Snap grew its daily active users by 23% to 306 million in the third quarter. On top of that, it claims to reach “more than 500 million people, including more than 75% of 13- to 34-year-olds in the United States, Canada, France, the U.K., Australia and the Netherlands.” Snap has attracted these highly sought-after consumers by continually evolving its social media app that became famous for disappearing photos and videos.
The company is a well-rounded entertainment platform, with mobile gaming and other offerings designed to thrive in 2022 and beyond. Snapchat is full of video content and shows from social media stars, Hollywood celebrities, and brands like the NFL.
Snap crucially launched a feature called Spotlight that aims to challenge TikTok. Snap also constantly releases various new augmented reality offerings, which make it a natural metaverse-style play.
Despite the setbacks, Snap’s Q3 sales climbed 57% to over $1 billion and its adjusted earnings soared to easily top our estimates. Zacks estimates currently call for its adjusted Q4 earnings to come in flat YoY at $0.09 a share on 31% higher revenue.
Meanwhile, it’s projected to swing from an adjusted loss of -$0.06 a share last year to +$0.35 per share for fiscal 2021 on 60% higher revenue that would see it pull in $4 billion. Its outlook for 2022 is subdued vs. where it was prior to its Q3 release. Nonetheless, Snap is projected to grow its earnings by another 47% in FY22 on 37% higher revenue to reach $5.5 billion.
Bottom Line
Snap’s revenue expansion is projected to slow down on a percentage basis. Still, it is expected to add roughly $1.5 billion to its top-line in 2022, which is almost as much as it made in all of 2019 ($1.7 billion).
Unfortunately, Snap’s downward earnings revision activity has landed it a Zacks Rank #4 (Sell) right now. This means investors might want to stay away from Snap until after its Q4 earnings release when it provides updated guidance.
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