Snap (SNAP) has recovered from a steep decline in Snap stock that began the day after its initial public offering in 2017. It took a long time, but a series of product upgrades added to the company's Snapchat messaging platform are driving user growth, engagement and monetization to new highs.
XSnap stock has tripled from its record low of 4.82 in December.
Based in Santa Monica, Calif., Snap is the owner of Snapchat. It's a smartphone app that uses the camera for manipulating and enhancing photos and videos that can be sent to other Snapchat users. The messaging platform is highly popular with the under-30 crowd and competes mostly with the Instagram platform of Facebook (FB).
Snap scored big with its eye-catching IPO in 2017 that raised $3.4 billion and gave it a market valuation of $23.8 billion. That made Snap the largest U.S.-listed IPO among tech companies since Facebook. But the party didn't last long as Snap stock plunged the following day and continued falling for months.
Facebook Copies Snapchat
Snap was under constant assault from Facebook, which copied most of Snapchat's best features and added them to its Instagram Stories platform. Numerous key employees left Snap as it began losing momentum, including its chief financial officer, weighing heavily on Snap stock.
But as Snap stock plunged to a record low of 4.82 on Dec. 21, investors began to take another look. The interest accelerated when Snap reported fourth-quarter earnings on Feb. 6 that smashed estimates. Its first-quarter results also came in better than expected, as the number of Snapchat users began growing again.
The company has spent much of the past year restructuring and developing new products for its Snapchat platform. Snap also is drawing in more advertisements.
During the first quarter, the company unveiled Snap Games, a live multiplayer gaming platform. It also added more augmented reality features to its Snapchat platform. And it expanded a line of original shows designed exclusively for its Snapchat audience.
In the second quarter, Snap added more made-for-Snapchat games, in partnership with game developer Zynga (ZNGA), and upgraded its Android app. Snap also added a new generation of augmented reality filters, which increased user engagement and interest from advertisers.
"The growth in our community, engagement, and revenue is the result of several transitions we completed over the past 18 months," Chief Executive Evan Spiegel said in prepared remarks with second-quarter earnings. "We look forward to building on our momentum and making significant ongoing progress in each of these areas."
Snap Stock Fundamental Analysis
Snap revenue has been growing at a steady double-digit pace but the company has yet to show a profit. For its second-quarter earnings, Snap reported an adjusted loss of 6 cents per share, better than the 10-cent loss Wall Street expected. Revenue jumped 48% to $388 million, well above the $360 million that was predicted. Snap's 6-cent loss compared with a 14-cent loss in the year-ago period.
The company added 13 million daily active users during the second quarter, its best performance since the second quarter of 2016. User growth climbed 7% from the previous quarter, following a year in which growth was declining or flat. It was the third quarter in a row of net additions from the prior quarter.
Snap stock soared 19% in reaction to the earnings report.
The company will report third-quarter earnings on Oct. 22, after the market close. Third-quarter revenue guidance in the range of $410 million to $435 million came in well ahead of analyst estimates at $402 million. Snap expects daily active users in the third quarter to reach 205 million to 207 million.
Analyst Views On Snap Stock
"Aside from user growth, Snap's ability to continue to grow its advertiser base is key to our future revenue growth assumptions," UBS analyst Eric Sheridan said in a note to clients after second-quarter results posted. "Management has indicated strong momentum in the number of advertisers on the platform."
Sheridan upgraded Snap to neutral from sell.
Wall Street analysts raised estimates on Snap after the earnings report. The stock performance will be driven primarily by Snap's ability to sustain user engagement momentum, continue to grow its advertiser base and scale to profitability in the coming years.
Is Snap Stock A Buy Now?
A technical analysis of Snap stock is a key component of determining whether it's worth buying.
The IBD Stock Checkup Tool shows that Snap currently has a relatively weak IBD Composite Rating of 70 out of a best-possible 99. But, it has a Relative Strength Rating of 98, which reflects its stock market performance.
A weakness is the unprofitable company's EPS Rating of 49, which compares quarterly and annual earnings-per-share growth with all other stocks. Typically you want an EPS Rating of 80 or higher.
However, Wall Street is more focused on Snap's accelerating sales growth, which has gone from 36% to 39% to 48% over the past three quarters. Unprofitable IPOs can deliver substantial gains for investors if sales growth is north of 30%, especially if it's accelerating.
Snap stock cleared its first-ever base in early June. Following the second-quarter earnings report in July, Snap stock gapped up to its highest level in 18 months, vaulting out of buy range. However, shares have now pulled back below its 50-day and 10-week moving averages. The stock would be a buy if it rebounds off those areas of support in strong trading volume.
To find the other best stocks to buy or watch, check out IBD Stock Lists and other IBD content.
Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.
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The post Is Snap Stock A Buy Right Now? Here's What Earnings, Charts Show appeared first on Investor's Business Daily.
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