SNAP Stock Has Plunged: Is It Time to Get In?

Snap Inc. (NYSE:SNAP) had a terrible day Tuesday, rising 4% during regular trading hours but plummeting 32% in after-market trading. Value-conscious investors may generally like large sales like this, but performing due diligence is always a prerequisite.

After all, some stock haircuts fall into the “cheap for a reason” category. Let’s figure out what triggered the selloff and determine if it might be time to buy some shares of SNAP stock.

It’s not TikTok, but it’s still pretty good.

The COVID-19 pandemic, while disastrous and tragic overall, has been a positive catalyst for the Snap and Snapchat social media apps. People were bored stuck at home, but they could always turn to apps like Snapchat for fun and to connect with others.

The catalyst of COVID-19 alone wasn’t enough to put Snap in a profitable position. However, SNAP stock has been spurred by heavy buying for some time, rising from $17 in early 2020 to over $80 in the heat of 2021.

Not to be nostalgic, but it was a time when it seemed like nothing could go wrong in the financial markets. Interest rate policies were very accommodating, and everything from 3D printing startups to non-fungible tokens (NFTs) and special purpose acquisition companies (SPACs) seemed like safe winners.

Then came 2022, and rising interest rates put pressure on many highly speculative companies. Then, in early 2023, a handful of local banks went bankrupt. Suddenly Snapchat had to justify its existence to keep investors off guard.

It also didn’t help Snapchat when China’s TikTok gained popularity and possibly stole some of its market share. Still, Snap had a pretty good third quarter, as it posted 5% year-over-year revenue growth and a slightly higher net income loss ($368 million in Q3 2023 vs. $360 million in Q3 2022). It was visible.

It may not be a miraculous result, but it is at least an acceptable result. Now that Snap has just released its fourth quarter numbers, it’s time to find out whether it hit or miss.

There is nothing to dispute here.

Knowing that SNAP stock plunged 32% in after-hours trading might lead you to believe that Snap’s quarterly performance was truly terrible. But in reality this is not the case.

Snap reported revenue of $1.361 billion in the fourth quarter of 2023, up 5% from the previous year. Nothing to write home about here, but nothing too unpleasant either.

Next, Snap’s free cash flow (FCF) surged from $78 million in the year-ago quarter to $111 million in the fourth quarter of 2023. This is actually a good sign for the company. Don’t you agree?

Snap also reported another net income loss, as usual, but at least it’s shrinking in size. Specifically, Snap’s fourth-quarter net losses totaled $248 million, compared to $288 million in the year-ago quarter.

Snap CEO Evan Spiegel also pointed out that not even the TikTok threat could stop the company’s user base growth last year.

Spiegel assured investors, “2023 has been an important year for Snap as we transform our advertising business and continue to expand our global community, reaching 414 million daily active users.”

Why did SNAP stock plummet?

Given the company’s acceptable quarterly results, it’s somewhat difficult to determine why the market immediately sold off SNAP stock. Barron’s report condemns Snap’s “disappointing outlook.” For this quarter, Snap expects an adjusted EBITDA loss of $55 million to $95 million, while Wall Street has called for an adjusted EBITDA loss of $21 million.

But Bloomberg attributes the stock plunge to “disappointing returns during the advertising downturn.” To reiterate, Snap reported fourth-quarter revenue of approximately $1.36 billion. Analysts expected it to be slightly higher, but the consensus estimate was $1.38 billion.

If that’s why investors sent SNAP stock down 32%, that seems like a flimsy excuse to me. Of course, it’s difficult to know whether there’s really a bargain here, since Snap isn’t profitable and consequently doesn’t have a trailing price-to-earnings (P/E) ratio to use as a valuation metric.

Still, the selling seems to have gone too far. But maybe this is because I tend to place more weight on actual results than on forward guidance, which is sometimes downright wrong.

It’s understandable why SNAP stock fell, but it’s not because Snap is going out of business or unexpectedly issuing millions of shares to raise capital. Since the news isn’t all that bad, I’d recommend sober investors consider taking a small position in Snap.

disclaimer: All investments involve risk. Under no circumstances should this article be taken as investment advice or constitute liability for investment profits or losses. The information in this report should not be relied upon for investment decisions. All investors should conduct their own due diligence and consult their own investment advisors when making trading decisions.