Snap Inc.
SNAP
stock has tumbled 60% from its September records as Apple’s privacy changes hurt its advertising business. Facebook parent Meta faces similar setbacks. But Snap’s fourth quarter report showcased resilience and its outlook remains strong in our mobile entertainment era.
Is it time to buy Snap stock ahead of its first quarter fiscal 2022 financial release due out on Thursday, April 21?
Set to Shrug Off Setbacks?
Snap first warned about the negative impact of Apple’s privacy policies in October. Apple
AAPL
introduced software changes last spring that require apps to ask users whether they want to be tracked. Meta
FB
said that Apple’s new privacy settings will cost it more than $10 billion in lost sales in 2022.
Snap is already implementing new solutions to help its advertisers track goals, improve ROI, and more.
In the face of the setbacks, Snap posted its first quarter of positive net income in Q4 and its daily active users surged 20% YoY to 319 million.
The company’s appeal and reach, particularly with younger users in the 13- to 34-year-old range, helped it expand its active advertiser count to another all-time last quarter. Snap has attracted these highly sought-after users by continually evolving its social media app that became famous for disappearing photos and videos.
Snap is a well-rounded entertainment platform, full of video content and shows from social media stars, Hollywood celebrities, and brands like the NFL, alongside mobile gaming. Snap also constantly releases various new augmented reality offerings that make it a natural metaverse-style play. And it launched a feature called Spotlight that aims to challenge TikTok.
Image Source: Zacks Investment Research
What Else?
Snap averaged 50% revenue growth between 2018 and 2021, with its 64% expansion last year its best as a public firm. Zacks estimates call for its revenue to climb 31% in FY22 and another 47% in 2023 to hit $7.9 billion—vs. just $2.5 billion in 2020.
Snap in 2021 swung from an adjusted loss of -$0.06 a share to +$0.50 per share. The firm’s adjusted FY22 EPS is expected to come in flat YoY and then soar 101% in 2023 to $1.01 per share. And Snap has crushed our quarterly earnings estimates by an average of 257% in the trailing four periods.
Snap is actively growing its user base outside of the U.S., with tons of growth opportunities in less statured markets and regions. The company also has a strong balance sheet, with $4.9 billion in total current assets ($7.5 billion in total) vs. $852 million in current liabilities ($3.7 billion total). And it managed its first full year of positive operating cash flow and free cash flow in 2021.
Bottom Line
Snap, which currently lands a Zacks Rank #3 (Hold), is still up 183% in the past three years to crush its industry’s 33% growth and FB’s 18%. The stock skyrocketed off its covid lows and still trades 150% higher today compared to two years ago.
The stock went a bit too far too fast, as did many other covid high-flyers, and Apple took a bite out of its growth outlook. Snap shares have tumbled 60% from its records to trade at around $34 per share. The stock’s consensus price target represents 80% upside to its current levels. And Snap’s valuation has also come down to seemingly more reasonable levels.
Snap could thrive in the modern entertainment age and 70% of the brokerage recommendations Zacks has are “Strong Buys,” with nothing below a “Hold.”
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