Snap Inc. (SNAP), the owner of the popular photo-messaging app Snapchat, has revealed projected third-quarter earnings that fall short of market expectations. The firm anticipates its revenue to lie between $1.07 billion and $1.13 billion, while analysts anticipated $1.13 billion.
In terms of daily active users, Street predicted an impressive 406.20 million for the third quarter. However, SNAP expects a slightly lower figure, with user numbers ranging from 405 million to 406 million.
To further compound the uncertainty, the company is currently under scrutiny from Britain’s data regulator. The body is evaluating Snapchat's practices regarding underage users, assessing whether the firm adequately enforces age restrictions on the platform. Depending upon their findings, a formal investigation into Snapchat's handling of these matters could be instigated in the coming months.
Given this context, an analysis of SNAP's crucial financial metrics suggests that it may be prudent to steer clear of the stock for the time being.
Analyzing Snap Inc.'s Financial Performance: Trends and Fluctuations from September 2020 to June 2023
Based on the provided data, the trailing-12-month net income of SNAP has been fluctuating from September 2020 through June 2023. Here is a summary of the trends:
- In the fourth quarter of 2020, SNAP's net income loss reduced to $944.84 million from a loss of $1.07 billion in the third quarter.
- The company continued to reduce its net loss to $751.50 million and $623.60 million in the second and third quarters of 2021, respectively. This indicated an improving trend.
- However, starting from the last quarter of 2021, the net income losses started increasing again from $487.96 million to $1.43 billion at the end of 2022.
- In 2023, there was a slight mitigation in the losses from $1.40 billion in the first quarter to $1.35 billion in the second quarter.
In terms of growth rate, by measuring the last value from the first, SNAP's net income has deteriorated significantly by approximately 26.27%. The data suggests that although there were periods of improvement, the general trend shows increasing losses for SNAP over this period.
The trailing-12-month revenue of SNAP appears to demonstrate an upward trend up to the end of 2022, followed by a slight drop in the first half of 2023.
- At the end of the third quarter of 2020, SNAP's revenue was $2.16 billion.
- Thereafter, revenue growth can be observed consistently every quarter, reaching its peak of $4.60 billion by the end of December 2022.
- This signifies a growth rate of approximately 113% over this two-year period.
- In the first quarter of 2023, a decline in revenue to $4.53 billion is seen.
- The second quarter of 2023 further exhibits a reduction, with revenue closing at $4.48 billion.
In summary, while the overall trend until the end of 2022 shows a substantial increase in revenue for SNAP, the initial half of 2023 has experienced albeit minor but negative fluctuations. This recent shift poses a concerning aspect that warrants a closer look to understand the driving factors behind this change.
Summary of gross margin trends and fluctuations for SNAP:
- In September 2020, SNAP reported a gross margin of 51.30%.
- By December 2020, there was a slight increase in gross margin to 52.80%.
- Thereafter, small fluctuations were observed throughout 2021, with the gross margin peaking at 57.5% in December 2021.
- The year 2022 began on a strong note, with the gross margin increasing steadily from 60.1% in March to 61.2% in June and maintaining that level until September.
- In the last quarter of 2022, however, SNAP witnessed a decline in its gross margin to 60.6%.
- Continuing the downward trend into 2023, the gross margin further dropped to 59.5% in March and 58.0% in June.
From September 2020 to June 2023, the gross margin demonstrated an overall growth of approximately 6.7 percentage points (from an initial 51.3% to 58.0% in June 2023), despite fluctuations towards the end of this period. The focus remains on the most recent downturn in gross margin, which stands at 58.0% for June 2023.
The data series represents the fluctuating trend of the analyst price target for SNAP from November 2021 through August 2023. To summarize:
- The analyst price target for SNAP was initially steady at $76 from November 12 to November 26, 2021.
- From December 2021, there was a small decrease but generally a stable trend presented with the price target at $75 through to early February 2022.
- A notable downtrend started from February 4, 2022, with the price target falling from $74.7 to $60 by the end of March 2022.
- The downward trend did continue much more steeply from April to June 2022, taking the price target from $57 to a notably low $30.
- In July 2022, the price target dipped drastically to $14 and then steadily declined to $10 by November 4, 2022.
- For a significant period, stretching from November 2022 till June 2023, the analyst price target remained consistently at $10.
- However, a minor glitch can be noted in June 2023 when the price target showed a minor dip to $9.8 before promptly returning to $10.
Comparing the first and the last value, the price target of SNAP shows a declining trend of nearly 87% over this timeline, starting from $76 in November 2021 and stooping down to $10 by August 2023.
Six-Month Review: Snap Inc.'s Share Price Fluctuations and Notable Trends
Reviewing the data provided on the share price of SNAP:
- The share price began at $10.95 on February 10, 2023, and slightly fell to $10.79 the following week on February 17, 2023.
- By the end of February 2023, the value had shrunk further to $9.90.
- In March 2023, the stock showed signs of recovery but was generally inconsistent—an upward trend to $11.27 by mid-month, followed by a drop below this peak to end the month at $11.15.
- April 2023 experienced slight fluctuations, beginning with a value of $10.81 and closing the month at a decreased price of $9.77.
- By May, there was a noticeable dip in performance at the start of the month ($8.27), but it gradually grew to close the month at $9.90.
- A relatively stable growth phase can be observed from June to mid-July, with the value topping at $13.12 on July 21, 2023.
- However, by the end of July and into August, the stock suffered losses, from $11.16 on July 28 downward to $10.57 by August 7, 2023.
Over the six-month period, the share price of SNAP has shown an overall increase from $10.95 to $10.57, despite several fluctuating periods. This equates to a growth rate of approximately -3.5%. One notable trend is the sharp decline following mid-July’s peak, which might hint at a potential deceleration of the stock's growth. Here is a chart of SNAP's price over the past 180 days.
Snap Inc's Consistent High Value and Rising Momentum and Growth: A Deep Dive
SNAP, categorized under the Internet stocks sector, consisting of 58 stocks, has demonstrated a consistent POWR Ratings grade of D (Sell). Evaluation of its rank within the category reveals a largely consistent position within the range of #50 to #56 over the observed period. Here are the details for the latest week as well as certain noticeable data points:
- Latest Data: As of August 8, SNAP has a POWR grade of D (Sell) and ranks #54 within the Internet stocks category.
- Best Rank in Category: SNAP achieved its best rank of #50 in the weeks of May 13 and May 20, 2023.
- Worst Rank in Category: The company's worst standing within the group was at the #56 position, which occurred during the weeks of March 18, April 22, April 29, and July 1, 2023.
While remaining largely steady in category rank, SNAP has struggled to improve its overall grade or surpass a significant number of its peers within the Internet stocks sector.
When examining the POWR Ratings for SNAP along six dimensions, the three most noteworthy dimensions appear to be Value, Momentum, and Growth.
- The Value rating for SNAP has consistently been high, making it the dimension with the highest score across all time periods. It first records a mark of 55 in February 2023, surges to a peak of 70 by May 2023, and then maintains scores in the upper ranges (48 to 66) through August 2023.
- The Momentum dimension is noted for its clear upward trend over the measured period. From February 2023, when the score was 22, it gradually increased to reach 42 by June 2023.
- The Growth dimension, meanwhile, fluctuates over time but ultimately showcases an overall uptrend. Starting from a rating of 15 in February 2023, it dips in the following months to hit a low of 13 in April 2023. However, the score rebounded afterward, hitting a maximum of 24 in August 2023.
Overall, these dimensions highlight valuable insights about SNAP and suggest potential areas of focus for further analysis.
How does Snap Inc. (SNAP) Stack Up Against its Peers?
Other stocks in the Internet sector that may be worth considering are Yelp Inc. (YELP), Travelzoo (TZOO), and Despegar.com, Corp. (DESP) - they have better POWR Ratings.
What To Do Next?
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SNAP shares were trading at $10.35 per share on Tuesday afternoon, down $0.22 (-2.08%). Year-to-date, SNAP has gained 15.64%, versus a 17.75% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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