Up 6% In The Last Trading Session, Where Is Snap Stock Headed?

-11.10%
Downside
16.39
Market
14.57
Trefis
SNAP: Snap logo
SNAP
Snap

Snap’s stock (NYSE: SNAP) has lost approximately 30% YTD as compared to the 8% rise in the S&P 500 index over the same period. The drop was due to weak results in the fourth quarter of 2023, with revenues and average revenue-per-user (ARPU) missing the mark. That said, the stock price gained 6.2% yesterday, which was accompanied by strength in most of the major tech stocks (NASDAQ up 2.1%). It came after the Fed chair Jerome Powell suggested possible rate cuts later in the year. Overall, at its current price of just below $12, Snap is trading 10% below its fair value of slightly above $13 – Trefis’ estimate for Snap’s valuation.

Amid the current financial backdrop, SNAP stock has suffered a sharp decline of 75% from levels of $50 in early January 2021 to around $12 now, vs. an increase of about 35% for the S&P 500 over this roughly 3-year period. However, the decrease in SNAP stock has been far from consistent. Returns for the stock were -6% in 2021, -81% in 2022, and 89% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that SNAP underperformed the S&P in 2021 and 2022. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Information Technology sector including MSFT, AAPL, and NVDA, and even for the megacap stars GOOG, TSLA, and AMZN. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could SNAP face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months – or will it see a recovery?

The company posted total revenues of $1.36 billion in Q4 2023 – up 5% y-o-y, mainly driven by a 10% y-o-y increase in the average daily active users (DAU) to 414 million. However, the positive impact growth in DAU was partially offset by a 5% decrease in ARPU (average revenue per user). On the cost front, operating loss was reduced from $287.6 million to $248.7 million in the quarter. Overall, the firm posted a net loss of $248.2 million, as compared to the net loss of $288.5 million in the year-ago period.

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The revenues were $4.6 billion in FY2023, which was at the same level as 2022. While the company reported growth in Europe and the rest of the world regions, the figure mainly suffered due to lower revenues in North America. Further, the operating expenses were at par with the previous year. That said, interest income improved from $59 million to $168.4 million in the year. Altogether, the net loss decreased from $1.4 billion to $1.3 billion.

Moving forward, we expect the same trend to continue in Q1. Overall, we forecast Snap’s revenues to remain around $5.23 billion in FY2024Additionally, SNAP’s revenue per share (RPS) is likely to improve to $3.24, which coupled with a P/S multiple of 4.1x will lead to a valuation of just above $13.

 Returns Mar 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 SNAP Return 8% -30% -19%
 S&P 500 Return 1% 8% 130%
 Trefis Reinforced Value Portfolio 1% 6% 650%

[1] Returns as of 3/8/2024
[2] Cumulative total returns since the end of 2016

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