Snap’s stock (NYSE: SNAP) has lost roughly 4% YTD as compared to the 12% rise in the S&P500 index over the same period. That said, at its current price of just below $9, it is trading 8% above its fair value of slightly above $9 – Trefis’ estimate for Snap’s valuation.
Interestingly, Snap stock had a Sharpe Ratio of 0.1 since early 2017, which is lower than 0.6 for the S&P 500 Index over the same period. This compares with the Sharpe of 1.25 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.
The company outperformed the earnings consensus in the second quarter of 2023, while the revenues were in line with expectations. It reported total revenues of $1.07 billion – down 4% y-o-y, mainly due to a drop in ARPU (average revenue per user) from $3.20 to $2.69. However, DAU (daily active users) – a key metric to measure user engagement, increased by 14% to 397 million. On the cost front, operating expenses increased in the quarter, mainly due to higher costs of revenues. However, improvement in the net interest income and other income partially reduced the negative impact on the bottom line. Overall, the firm posted a net loss of $377.3 million, as compared to the net loss of $422.1 million in the year-ago period.
The top line decreased 5% y-o-y to $2.06 billion in the first half of FY 2023. It was primarily because of a drop in the North American segment. Further, the operating expenses as a % of revenues increased over the same period. That said, the negative impact of higher expenses and lower revenues was more than offset by the growth in the net interest income and other income. It reduced the net loss to $706 million, as compared to the figure of $781.7 million in the year-ago period.
Moving forward, we expect the Q3 results to be on similar lines. Notably, the company estimates Q3 revenues to remain between $1.07 billion – $1.13 billion. Overall, we forecast Snap’s revenues to remain around $4.52 billion in FY2023. Additionally, SNAP’s revenue per share (RPS) is likely to decline to $2.80, which coupled with a P/S multiple of 3.3x will lead to a valuation of just above $9.
|S&P 500 Return||-5%||12%||92%|
|Trefis Reinforced Value Portfolio||-6%||24%||537%|
 Month-to-date and year-to-date as of 9/29/2023
 Cumulative total returns since the end of 2016