Snap (NYSE:SNAP) shares were down 74% over 12 months to Thursday. But if that wasn’t bad enough for this growth stock, it tanked a further 23% in after-hours trading.
The company developed and maintains technological products and services, namely Snapchat, Spectacles, and Bitmoji.
So what’s going on here, and does this represent a buying opportunity for my portfolio?
Why is Snap down?
Snap reported its earnings for Q2 after the closing bell on Thursday. The company missed Wall Street’s expectations, sending shares, which were still pretty expensive, plunging 23%.
Revenue came in at $1.11bn versus analysts predictions of $1.14bn. Earnings per share came in at a loss of $00.2 versus an expected loss of $0.01, according to Refinitiv. However, on a positive note, daily active users were recorded at 347m versus 343.2m expected.
The big issue was around advertising revenue, with companies seemingly pulling back on marketing spends. The social media giant relies heavily on advertising revenue, so clearly this isn’t good news.
Snap noted several headwinds and pointed to the current economic environment, characterised by lower economic growth expectation, higher inflation, and higher interest rates which push up the cost of growth.
Average revenue per Snap user fell 4.5% year-over-year, and amid the current environment, the company decided against providing guidance on the next quarter.
“While the continued growth of our community increases the long-term opportunity for our business, our financial results for Q2 do not reflect our ambition“, CEO Evan Spiegel said in a release.
Snap’s earnings could serve as a good indicator of the health of the digital ad market in general. The news has wiped $76bn off the stock price of social media companies, according to Bloomberg.
So, is this a buy opportunity?
Does the collapse make Snap a good buying opportunity? For me, no. I still see Snap as one of the more expensive tech stocks. Snap has been growing towards profitability in recent years, but it has a price-to-earnings ratio of around 80, which is very expensive. It’s also worth remembering that Snapchat has been around for some time — it’s not a real newcomer.
This might be based on my own biases. I don’t use Snapchat and I don’t know anyone who does. Although, I do still have an account from when the app appeared to have some utility.
But, there are some positives. As noted above, the audience is growing, although I’d be interested to know more about the active user numbers. I occasionally open the app, but I don’t actively engage with it.
In June, in a bid to raise revenue, Snap announced Snapchat+ subscription service. Snapchat+ promises users access to “exclusive, experimental, and pre-release features“. It’s priced at $3.99. In all honesty, I can’t think of what useful features it might have, but maybe I’m getting old.
It’s also worth noting that Snap now has a price-to-sales ratio of around 4.5, which is pretty cheap. But if growth is falling, that won’t ease investor sentiment.
For me, it’s a stock I won’t be buying.
