Snap’s stock (NYSE: SNAP) dropped 6.9% on 5th August as compared to the 3% decrease in the S&P500 index. In sharp contrast, Snap’s peer Meta Platforms (NASDAQ: META) was down 3% on the 5th. The decline in SNAP stock price was partly due to weak second-quarter results and Q3 guidance (released last week) and partly because of an increase in the unemployment rate – dampening investor sentiment. Notably, the markets in general, have witnessed selling pressure after the July Non-Farm Payrolls data was released on 2nd August, as fear of a potential slowdown spooked investors. Overall, at its current price of just below $9, Snap is trading 34% below its fair value of slightly above $13 – Trefis’ estimate for Snap’s valuation.
Amid the current financial backdrop, SNAP stock has suffered a sharp decline of 80% from levels of $50 in early January 2021 to around $9 now, vs. an increase of about 40% for the S&P 500 over this roughly 3-year period. However, the decrease in SNAP stock has been far from consistent. Returns for the stock were -6% in 2021, -81% in 2022, and 89% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that SNAP underperformed the S&P in 2021 and 2022. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Information Technology sector including AAPL, MSFT, and NVDA, and even for the megacap stars GOOG, TSLA, and AMZN. In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could SNAP face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months – or will it see a recovery?
The company missed the consensus estimates of revenues and global average revenue-per-user in the second quarter. It posted total revenues of $1.24 billion – up 16% y-o-y, mainly driven by a 9% y-o-y rise in the average daily active users to 432 million and an increase in average revenue-per-user from $2.69 to $2.86. On the cost front, operating loss was reduced by 37% y-o-y to $254 million in the quarter. Overall, the firm posted a net loss of $248.6 million, as compared to the net loss of $377.3 million in the year-ago period.
The revenues grew 18% y-o-y to $2.43 billion in the first half of FY2024, driven by growth in both the DAU and ARPU. Further, the operating expenses as a % of revenues reduced over the same period. Altogether, the net loss decreased from $706 million to $553.7 million.
Moving forward, the company expects revenues to remain between $1,335 – $1,375 million in Q3 – lower than the consensus estimates. Overall, we forecast Snap’s revenues to remain around $5.35 billion in FY20234. Additionally, SNAP’s revenue per share is likely to improve to $3.31, which coupled with a P/S multiple of 4x will lead to a valuation of just above $13.
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