Snap’s stock (NYSE: SNAP) saw a significant drop of 6.9% on 5th August, while its peer Meta Platforms (NASDAQ: META) was down 3% on the same day. This decline in Snap’s stock price was attributed to weak second-quarter results and Q3 guidance, released the previous week, as well as an increase in the unemployment rate that dampened investor sentiment. The overall market also experienced selling pressure after the release of the July Non-Farm Payrolls data, with Snap currently trading at a price just below $9, which is 34% below its fair value estimated at slightly above $13 by Trefis.
Despite the recent decline, Snap’s stock has experienced a roller-coaster ride over the past few years, dropping 80% from $50 in early 2021 to around $9 currently. While the stock underperformed the S&P 500 in 2021 and 2022, it showed strong returns in 2023. Beating the S&P 500 has been challenging for individual stocks in recent years, including heavyweights in the Information Technology sector such as AAPL, MSFT, and NVDA, as well as megacap stars like GOOG, TSLA, and AMZN. In contrast, the Trefis High Quality Portfolio, consisting of 30 stocks, has outperformed the S&P 500 consistently. As the macroeconomic environment remains uncertain, with high oil prices and elevated interest rates, the question arises whether Snap will continue to underperform or see a recovery in the near future.
In the second quarter, Snap missed consensus estimates for revenues and global average revenue-per-user. The total revenues reached $1.24 billion, up 16% year-over-year, driven by a 9% increase in average daily active users and a rise in average revenue-per-user from $2.69 to $2.86. Operating loss was reduced by 37% year-over-year to $254 million, with a net loss of $248.6 million, compared to $377.3 million in the previous year. The company also reported an 18% year-over-year revenue growth to $2.43 billion in the first half of FY2024, with a decrease in net loss from $706 million to $553.7 million.
For the upcoming quarter, Snap expects revenues to range between $1,335 million and $1,375 million, which is lower than consensus estimates. It is forecasted that Snap’s revenues will stay around $5.35 billion in FY2024, with an improvement in revenue per share to $3.31. Based on a P/S multiple of 4x, this is expected to lead to a valuation slightly above $13. Overall, Snap faces uncertainty in the market, but its financial results and guidance indicate potential for growth and recovery in the near future. Investors will be monitoring the company closely to see how it navigates the challenges and opportunities ahead.
