Snap Inc. (NYSE: SNAP) has tracked lower with the rest of the market with the advent of COVID-19. While Snap might not have much of a supply chain to constrict, it is falling along with the rest of the tech sector and social media stocks.
This is not the first time that Snap has seen its shares crushed. In fact, since its initial public offering, shares have not come close to that level again. In the past, analysts have questioned Snap’s valuation and whether it actually can monetize its user base. The shares have been much lower than they are now, fighting through tougher questions of valuation.
This begs the question: Is Snap stock way oversold at this point?
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Fourth-Quarter Fundamentals
When Snap reported its most recent quarterly results, the photo-sharing service notched a solid bottom-line beat. Even though investors were not satisfied with the results, it was a much-needed change for the company: moving toward profitability.
For that quarter, Snap posted $0.03 in earnings per share and $561 million in revenue, compared with Wall Street consensus estimates of $0.01 per share and $563.03 million, respectively. The quarterly results were a big step forward from a year ago, when Snap had a net loss of $0.04 per share and $389.82 million in revenue.
The company had other notable increases in its daily active users (DAU) and average revenue per user (ARPU). DAU increased to 218 million from 187 million last year, and ARPU increased 23% year over year to $2.58. Key takeaways here are that Snap is seeing solid user growth and the firm is monetizing its users better. The path to profitability is through these metrics.
Looking ahead to the first quarter, Snap expects to see revenues in the range of $450 million to $470 million and an adjusted EBITDA loss between $90 million and $70 million. The consensus estimates call for a net loss of $0.06 per share and $468.4 million in revenue for the quarter.
With the broad markets in turmoil, and Snap seeing shares pull back 39% from February 19 (before Monday’s tumble), there’s still more to be seen for this market downturn. However, these fundamentals establish a solid base for this social media firm.
Post-Coronavirus Social Media
COVID-19 has rocked the broad markets, with the Dow Jones industrial average, S&P 500 and Nasdaq having their worst days since the crash in 1987. There hasn’t been a single sector (or industry for that matter) that has not been touched by this virus. The tide has gone out.
The question going forward is which industries are best poised for recovery once the markets find a bottom. Right now, the concern at big tech is not infecting the workforce. For the most part, companies like Snap, Facebook and Twitter do not have supply chains that will be affected by the virus. If anything, more people staying in, avoiding crowds or even self-quarantining will inevitability be more engaged in social media.
Snap’s platform as a photo-sharing and chat service could stand to benefit from this outbreak as more users sign up. Although Snap doesn’t occupy the social media high ground like Facebook, it does have a fairly young demographic of users that are fiercely loyal to the platform.
At the end of the third quarter of last year, 53% of Snapchat users were between the ages of 15 and 25. Another 34% were between 26 and 35 years old. If schools or universities continue to be shut down in the United States, like they have been in Italy, then Snap could be a winner here. However, this all depends on DAU growth.
Long Road Ahead
As seems to be the case with most successful social media companies, the number of Snap users has risen quickly. At the end of 2014, the count was 71 million, just before a steep ramp upward. DAU rose to 107 million at the end of 2015, 158 million at the end of 2016, 178 million by the end of 2017 and 188 million to end 2018.
Obviously, growth has slowed considerably. Snap said that a redesign of its Snapchat product weighed on growth in 2018. Snap added another 30 million DAU by the end of 2019. If Snap can keep up this pace, the case for being oversold begins to materialize.
CEO Evan Spiegel commented on Snap’s outlook: “The strength in our core business gives us confidence in our long term growth and profitability and we’re excited to build on these results in 2020 and beyond.”
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