Snap (SNAP) is known for its multi-function camera app, Snapchat. I am bullish on the stock.
Long gone are the days when social media mostly consisted of static content. Today’s social media platforms must be dynamic or get left behind.
Snapchat, which is Snap’s flagship platform, isn’t necessarily the most popular social media platform. However, the company is infusing Snap with leading-edge features. That way, Snap can continue to retain a large user base among Millennials and Gen Z.
At the same time, SNAP stock has disappointed some investors lately. With that in mind, let’s perform a checkup to see if the stock is worth buying now.
A Quick Look at SNAP Stock
No pun intended, but SNAP stock is in a slump that it just can’t seem to “snap out of.”
The situation wasn’t always so bad. In September, the Snap share price sailed to a 52-week high of $83.34, after having started 2021 at just $50.
Then, the stock just snapped (sorry, I couldn’t help myself). In late October, SNAP stock tumbled from $75 to $55 in the blink of an eye.
Surely, it’s no coincidence that this occurred immediately after Snap issued its most recent earnings results – but we’ll get to that in a moment.
The sellers followed through after the big plunge in SNAP stock, taking it to $47 and change in early December. (See SNAP stock charts on TipRanks)
Those earnings results must have been truly awful, to justify such a severe share-price haircut. Right?
Showing Great Improvement
Actually, Snap’s third-quarter 2021 fiscal results demonstrated that the company is moving towards profitability.
You can decide for yourself whether Wall Street should have reacted so negatively to these data points.
First of all, Snap’s daily active user count increased 23% year-over-year to 306 million. Secondly, the company’s quarterly revenues improved 57% year-over-year to $1.067 billion. On top of that, Snap’s adjusted EBITDA soared 209% to $174 million in Q3 2021, compared to the prior-year quarter’s result.
Besides, Snap is working towards a better bottom line, as the company’s quarterly net earnings loss of $72 million represents a 64% year-over-year improvement.
Not only that, but Snap’s free cash flow swung from -$70 million a year ago, to $52 million (positive, not negative) in Q3 2021.
An Augmented Revenue Source
As alluded to earlier, Snapchat remains a feature-rich and cutting-edge social media platform. If you believe that augmented reality (AR) will be important in the coming years, then I’ve got some great news for Snap’s shareholders.
Snap is taking AR very seriously, and implementing it through “lenses,” which are Snap’s version of AR experiences. Reportedly, lenses are used every day by over 200 million Snapchat users. To facilitate the use of lenses, Snap offers products such as the Snap Camera, Spectacles, and Camera Kit.
Clearly, analysts at Jefferies are impressed with Snap’s foray into AR.
In September, analyst Andrew Uerkewitz expressed a belief that Snap is “beginning to successfully democratize its AR tool sets through its recently launched Lens Studio and Camera Kit.”
Furthermore, the Jefferies analysts identified Snap as “one of few platforms making AR technology easily accessible both inside and outside its App, which should support the company’s AR leadership for years to come.”
Last month, Jefferies analyst Brent Thill issued a Buy rating and an optimistic $76 price target on SNAP stock.
Wall Street’s Take
According to TipRanks’ analyst rating consensus, SNAP is a Strong Buy, based on 21 Buy and six Hold ratings. The average SNAP price target is $74.80, implying 59.9% upside potential.
The Takeaway
With its push into the world of AR, Snap is maintaining its stature as a future-facing social media platform. However, not all investors and analysts seem to recognize Snap’s leadership position in this area. Also, the market seems to have overreacted to an earnings report that wasn’t particularly bad.
That’s perfectly fine, as it presents an opportunity for contrarian investors to grab some shares of SNAP stock at a heavily discounted price point.
Disclosure: At the time of publication, David Moadel did not have a position in any of the securities mentioned in this article.
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