Snap (NYSE: SNAP) is a social media company that develops and maintains technological products and services like Snapchat, Spectacles, and Bitmoji. SNAP stock has experienced quite a bit of turbulence over the past year and has lost nearly 40% of its value since February 2022.
But the stock has staged a comeback since its Q4 results and here’s why Snap should be part of your growth portfolio right now.
In Q4 o 2021, Snap showed a strong top and bottom-line performance indicating solid user growth as well as resilience with Apple’s (NASDAQ: AAPL) iOS changes. The company was able to grow its revenues 42% year-over-year along with increasing the number of daily active users by 20%. By capitalizing on this surge in social media traffic, Snap was able to consistently grow its user base over the last three years along with increasing the daily active users every single quarter.
Remarkably, the fourth quarter of 2021 was the first profitable quarter for Snap during which it generated $23 million in net income compared to the net loss of $113 million it had generated a year ago. However, the company is still an unprofitable one on an annual basis, though its net loss has narrowed significantly by the end of 2021.
Additionally, the adjusted EBITDA for the 12-month period ending December 31st, 2021 blew up by a massive 1265% reaching $617 million with the free cash flows surging 199% to $223 million.
The company’s revenue did decelerate in the second half of 2021 for trying to comprehend the impact of Apple's privacy update on its direct response ads. But unlike Meta (NASDAQ: FB), Snap was able to survive the blow as it deepened its pool of first-party data and relied on tracking tools like Snap Pixel.
The Meta factor
Over the past years, Meta Platforms have always maintained a position of strength over Snapchat in general. But after the social media largely disappointed its investors earlier this month by reporting a decelerating growth rate, missed earnings estimates and weak guidance for the current year, Snap started getting benefitted indirectly. Basically, peoples’ dissent towards the Meta Stock in recent months is actually turning out to be a blessing in disguise for the Snap stock.
Meta had revealed that Facebook has been losing almost one million users daily since the last two quarters stagnating the platform’s global growth. So, when Snap announced its continued growth and its first quarterly net profit the investors got pretty excited. The Snap stock started rallying because investors loved the fact that the issues weighing down the performance of Meta Platforms didn't apply to Snap's business.
Snap has a sustainable business model
Snap’s quick-fire video and picture messaging have turned out to be quite appealing to the younger crowd. The company’s business model can potentially continue to remain attractive to retailers and other businesses in the upcoming decade. Moreover, its advertising revenue will always ensure a consistent flow of resources to the company.
Snap seems to be sailing through the current economic environment pretty well and its financial momentum is really impressive. But the company still has a long way to go and the incredibly high levels of competition in the market with social media giants like TikTok is going to make its growth process much tougher.
However, Snap’s high market penetration in countries like the United States, Canada, the United Kingdom indicates it enjoys high engagement rates and can probably replicate the same in other geographical markets as well.
Analysts have a target of $57.65 on the stock. It’s currently trading at $39.6 levels and can gain close to 50% in the next year.