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Snap Inc. is facing challenges after weaker-than-expected performance in Q2 2023, causing a major drop in stock price, and it is currently recommended to Hold the stock until future earnings reports provide a clearer picture of the company's financial health and growth prospects. (Analysis date: July 26, 2023)
Fundamental Analysis
Snap Inc. ($SNAP), trading on the New York Stock Exchange (NYSE), owns popular social media app Snapchat. As of its last close on July 25, 2023, the company had a market capitalization of $16.19 billion, with approximately 1.60 billion outstanding shares. Despite showing steady user growth and an increase in Snapchat+ users, Snap's second quarter of 2023 was weaker than expected in nearly all metrics. The company's top-line revenues fell 4% to $1.07 billion, operating losses extended one percent to $404 million, and underlying earnings flipped from $7 million in the green to a painful $38.5 million in losses.
Snap's Earnings per Share (EPS) is currently at -$0.85 and it has a negative Price to Earnings ratio (P/E) of -11.89, indicating the company is not currently profitable. However, it is not uncommon for tech companies, especially those focused on growth, to have negative P/E ratios. The company's earnings are therefore an important data point to monitor. Snap's most recent earnings announcement was on 10/18/2023.
Technical Analysis
Snap's current Relative Strength Index (RSI14) is 55, which suggests that the stock is neither overbought nor oversold. Based on moving averages, the stock has been on a positive trend, with the 50-day and the 200-day moving averages standing at $11.04 and $10.33 respectively. This can signify an overall upward movement in the share price over the past year. The Moving Average Convergence Divergence (MACD) at 0.93 also supports this upward trend.
Though the stock has a year's high and low of $13.89 and $7.33 respectively, the recent drop in prices to $12.51 should be noted. The stock's volatility is evident as it fluctuated between $12.35 and $12.67 on the last trading day. An analysis of the volume shows that the stock is witnessing elevated liquidity as the trading volume of 42.20 million shares is higher than the average volume of 28.09 million shares.
Projection and Recommendation
Taking into consideration both the fundamental and technical analysis, as well as recent news affecting the stock price, Snap Inc. appears to be in a difficult position. The weaker-than-expected Q2 2023 performance and guidance have negatively impacted the stock price, causing a major drop. The $30.57 median consensus target from various analysts and a discounted cash flow (DCF) valuation of $10.99 suggest new challenges as the stock is trading much closer to its downside target.
Given the future earnings announcements, it remains critical to watch how the company's future growth plans unfold, adding an element of uncertainty. While recent increments in user growth and an increase in Snapchat+ users are encouraging, they have yet to translate to increased profitability or revenue growth.
Factoring in all these variables, Snap Inc. is a Hold at present, primarily due to the potential for improvement provided by its growth strategies. Yet, any immediate action should be undertaken with caution until its future earnings report provides a clearer picture of the company's financial health and growth prospects.
