Snap Inc.
SNAP
shares have skyrocketed 165% in the last six months as Wall Street dives into the social media company for its ability to attract consumers and advertisers in a quicky-changing entertainment environment. The stock rests right near its new records as Snap prepares to release its fourth quarter fiscal 2020 financial results after the market closes on Thursday, February 4.
Beyond Disappearing
Snap has easily topped the tech sector over the last several months and it surged over 7% on Monday as the market bounced back after its worst week since October. Tesla
TSLA
and other big names also jumped to start the new month as investors might be finally turning their attention to the blowout quarterly results from Apple
AAPL
, Microsoft
MSFT
, and others that were outshined by GameStop.
Snap’s disappearing photo and video sharing app has become more popular than ever as it expands beyond sharing with friends and family into a robust entertainment app built for changing consumer habits. The company continues to release various augmented reality offerings and Lenses, which it became famous for.
Meanwhile, its Discover page has become a hit and it has partnerships with Disney
DIS
, the NFL, celebrities like Kevin Hart, and more for its Shows. The company said last quarter that daily time spent watching Shows climbed by 50%. Snap also entered the growing mobile video game market in 2019. For instance, mobile accounts for roughly 50% of the total global gaming market that’s projected to expand from $160 billion in 2020 to over $200 billion by 2023.
More recently, Snap announced in November its new Spotlight feature that hopes to take on rising social media star TikTok. All of Snap’s efforts have helped it grow into a widely popular app for the new age of entertainment that has people of all ages glued to their devices.
Snap has claimed that in the U.S. it continues “to reach more than 90% of 13 to 24 year-olds and more than 75% of 13 to 34 year-olds.” This has helped it become even more attractive to advertisers, especially as people disconnect from ad-supported legacy media in favor of Netflix
NFLX
, Spotify
SPOT
, and countless other services.
Other Fundamentals
The nearby chart shows that SNAP is up over 700% in the last two years to blow by the tech sector and social media titan Facebook’s
FB
55%, as it faces heavy government scrutiny. Snap has also climbed 200% in the last year from under $20 a share to its current highs.
The stock has cooled off a bit since its big post-Q3 release surge, which might give it more potential to break out if it’s able to impress investors again on Thursday. Meanwhile, Snap trades at a 10% discount to its own year-long highs at 21.9X forward sales. This also marks a discount to fellow pandemic high-flyers such as Zoom’s
ZM
41X and Shopify’s
SHOP
35X.
Snapchat ended 2019 with 218 million daily active users, up 17%, while its revenue jumped 45%. Snap closed the third quarter with 249 million DAUs and it swung from an adjusted loss to positive earnings, with revenue up 52%.
Looking ahead, Zacks estimates call for Snap’s fourth quarter sales to climb 51% to come in at $847.4 million. This is projected to help push its adjusted earnings by 133% to $0.07 per. More broadly, Snap’s fiscal 2020 sales are projected to climb 43% to $2.5 billion and then jump another 43% in FY21 to reach $3.5 billion.
These estimates would represent four-straight years of between 41% to 45% top-line expansion. On the bottom-line, Snap is projected to trim its adjusted loss from -$0.16 to -$0.09 a share in 2020, with it then projected to soar to +$0.21 in 2021.
Bottom Line
Snap’s positive earnings revisions help it grab a Zacks Rank #2 (Buy) a few days out from its Q4 release. The company easily topped our bottom-line estimates last quarter and 20 of the 28 brokerage recommendations Zacks has for Snap come in at a “Strong Buy.”
It will likely be difficult for Snap to recreate Q3’s big post-release rally. But long-term investors might want to consider Snap for its ability to reach what it calls an “unduplicated and hard-to-reach audience” that will help it capture digital ad dollars in a world where people are constantly on their smartphones.
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