Is Snap Stock a buy it now?

Instantaneous ( INSTANTANEOUS 1.16% ) released its first-quarter earnings report on April 21. The social media company’s revenue rose 38% year-over-year to $1.06 billion, but narrowly missed analysts’ expectations of $10 million.

Based on generally accepted accounting principles (GAAP), Snap’s net loss went from $286.9 million to $359.6 million. On a non-GAAP basis, it posted a net loss of $39.3 million, compared to net profit of $2.5 million a year ago, its non-GAAP net loss of 0.02 $ per share being three cents lower than the consensus forecast. However, its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) remained in the black at $64.5 million, which improved significantly from a loss of $1.7 million a year ago. one year old.

Image source: Getty Images.

Those numbers were mixed, but Snap shares held steady after the report. Could this battered growth stock finally be worth buying back after being halved in the last 12 months?

Snap’s growth cools again

Snap’s daily active users (DAUs) grew 18% year-over-year to 332 million in the first quarter, ending a five-quarter streak of growth of 20% or more. However, its DAUs continued to increase sequentially and year-over-year across its three geographies (North America, Europe, and Rest of the World) and easily exceeded its own forecast for 328-330 million DAUs.

Its average revenue per user (ARPU) grew 17% year-over-year to $3.20, but that also represents a slowdown from previous quarters.

Growth (YOY)

Q1 2021

Q2 2021

Q3 2021

Q4 2021

Q1 2022



















Data source: Snap. YOY = year after year.

In the second quarter, Snap expects to reach 343-345 million DAUs, which would represent a growth of 17-18% over the previous year. He expects his revenue to grow 20-25% year over year.

However, analysts expected Snap’s revenue to grow 44% in the second quarter and 37% for the full year. Those estimates were likely based on Snap’s Investor Day presentation last February, when it boldly claimed it would increase its annual revenue by around 50% for “the next few years.”

Is Snap’s slowdown temporary?

Snap has yet to back down from that ambitious long-term guidance, but three major headwinds have held back its growth over the past year.

First, Snap struggled with Appleit is (AAPL -2.78% ) iOS update in the second half of 2021. It addressed these challenges in the fourth quarter by rolling out new ad tracking services like Snap Pixel, but the update still hampered its ARPU and revenue growth. total business over the year.

Second, Russia’s invasion of Ukraine and subsequent economic disruption hurt Snap’s advertising business. These aftershocks could continue to dampen the market’s appetite for new ad campaigns.

Finally, Snap faces stiff competition from ByteDanceit’s TikTok. Snap did not directly address TikTok during its last conference call – as Metaplatforms (FB -2.11% ) did so in February — but he repeatedly mentioned expanding and monetizing Spotlight, its own short-video competitor to TikTok, to address those concerns. Meta’s aggressive expansion of Facebook and Instagram’s short video features to compete with TikTok could lead to more competition.

Snap’s margins could continue to decline

Snap’s adjusted EBITDA margin of 6.1% in the first quarter was a big improvement from its negative margin a year earlier, but it was still down sharply from its 25% margin. 2% in the fourth quarter.

For the second quarter, it expects to generate $0 million to $50 million in adjusted EBITDA. The midpoints of its revenue and adjusted EBITDA guidance imply that its adjusted EBITDA margin will drop to around 2.1%.

Snap attributes the continued contraction to its growing workforce, rising marketing costs and a return to travel and event spending, which had temporarily declined during the pandemic. These higher operating costs offset the continued expansion of its gross margins, which have benefited from the increased scale of its cloud infrastructure.

Are Snap shares worth buying again?

Based on analyst expectations, Snap shares are trading at eight times this year’s sales. That seems like a low price-to-sales ratio for a company that has told investors to expect 50% growth over the next few years. But as I mentioned earlier, Snap’s recent downturn indicates that those estimates are too high.

But even if Snap’s revenue only increases 25% to $5.15 billion this year, its stock would still be reasonably valued at nine times that estimate. Therefore, I think Snap’s downside potential is quite limited at these levels.

Still, Snap’s upside potential could still be limited by inflation, rising interest rates and other macro shocks that dampen market appetite for higher-growth tech stocks. In other words, Snap’s stock won’t sink, but it certainly won’t rise anytime soon.

Investors who think Snapchat still has power as a major social media platform can rack up stock here, but they shouldn’t expect Snap to outperform the market in the coming quarters.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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