The Snap Inc. stock price has moved sideways in the past two years as investors focus on its deteriorating business and rising competition from the likes of Instagram and TikTok. It has moved to $10.7, down by over 87% from its highest level in 2021.
Snap’s market cap of over $17 billion is about 82x smaller than that of Meta Platforms, the parent company of Facebook, Instagram, and WhatsApp, which is now valued at over $1.46 trillion.
Snap’s business has been slowing
Snap, formerly known as Snapchat, is one of the biggest social media companies in the world with over 432 million daily active users (DAU).
It is a company that is significantly different from Meta Platforms. For one, it is a single-product company, while Meta is made up of several platforms like Facebook and Instagram.
Read more: Meta stock quietly gained 348% in 2 years while markets focused on Nvidia, Apple
Snap’s application is mostly popular among Gen Z, who love its camera and sharing features. The challenge, however, is that many of its traditional users have now come of age, and are no longer sharing as much as they did in the past.
At the same time, Snap’s revenue growth has stalled as advertisers have embraced other social media platforms, especially TikTok.
Snap’s advertisers on the more lucrative IoS ecosystem, have also found it difficult to target users because of the privacy issues.
Its annual result show that its annual revenue rose from $1.7 billion in 2019 to $4.606 billion in 2023. Its 2023 revenue was a small increase from the previous year’s $4.601 billion.
Worse, Snap has never achieved annual profitability as the management has worked to identify more levers of growth. Its annual loss in 2023 was $1.32 billion, a small decline from the $1.42 billion it lost in the previous year. Snap has lost over $5 billion in the last five years.
One reason for this is that Evan Spiegel and his team have attempted to build the next big thing to diversify the business. The first product was the Snapchat Spectacles, which became highly popular initially and then imploded.
The management is now working on augmented reality, an industry that is yet to pick up. Most analysts believe that the cost of these investments is unjustifiable. The company also launched its Generative AI models, partnered with Live Nation, and Cartier.
Snap is also working to clone TikTok, but there are questions on whether such a relaunch will work out in the long term.
Read more: If you invest $1,000 in Snap stock today, here’s your 2025 return
Snap earnings ahead
The next important Snap news will be its earnings, which will come out on Tuesday after the market closes.
The most recent numbers showed that Snap’s revenue rose to $1.23 billion in the second quarter, up from $1.06 billion in the same period a year earlier. Its average revenue per user improved to $2.86, while its operating margin improved to minus 21%.
The results also showed that its monthly active users rose to 850 million for the first time ever, a big milestone. Most of these users are from Asia and South America. In its most lucrative North American market, Snap’s daily active users have held steady at 100 million, meaning that it is not seeing any growth there.
The North American business is so important because a user there is more valuable than in the other regions combined. North America’s ARPU rose to $7.67 in Q2, much higher than the global average of $2.86.
According to Yahoo Finance, the average revenue estimate for Snap is $1.36 billion, a 34% increase from the same period last year. The company will also provide a forward guidance of Q4 revenue of $1.56, a 22.5% increase from last year. For the year, its annual revenue will be $5.34 billion, followed by $6.08 billion.
We believe that Snap’s business is doing modestly well, but that the management should focus on cutting costs and becoming more profitable. Snap has gross margins of 53%, much lower than Meta’s 81%. Meta has a profit margin of 34%.
If Snap can match Meta’s profit margin of 34%, it would mean that its profit would be $2 billion, making it reasonably valued.
Snap stock price analysis
Snap chart by TradingView
The weekly chart shows that the Snap share price has moved sideways in the past two years. It has remained above the important support level at $7.18 in 2022 to $10.7.
The stock’s attempts to recover faced a big resistance at $17.25 in 2024. It has remained slightly below the 50-week and 100-week moving averages.
Historically, Snap tends to show substantial volatility after its earnings. In this report, I believe that the shares will have a bearish breakout, and potentially retest the important support at $7.18. The alternative scenario is where the stock rises and retests the resistance at $13.
The post Snap stock forecast: brace for big moves ahead of earnings appeared first on Invezz
