Last week, shares of Snap (NYSE:SNAP) saw a significant selloff following the publication of quarterly earnings. Financial data from the social media behemoth indicated that platform indicators were deteriorating, contributing to a significant loss for the quarter despite an increase in daily active users and sales.
SNAP dropped by approximately 40% in a single session, dropping to its lowest point since the height of the epidemic in early 2020. Has the selling frenzy created a base for bargain seekers to enter, washing away all the bad news? Has SNAP turned into a buy at these prices, in other words?
What level is too low?
Before the announcement of its earnings report, SNAP rose in six of the seven sessions, trading near $16.35. The release of the results report drastically changed the mood and caused a massive departure of investors. Friday saw a 39% decline in the shares.
Shares kept up their downward trend early in Monday’s trading, falling to an intraday 52-week low of $9.66. However, at that point, SNAP began to attract some purchasing activity, and the stock stabilized slightly below $10.
SNAP reported a net loss of $422.1 million, or 26 cents per share, in its quarterly report. Revenues, meanwhile, increased by 13% from the previous year to $1.11B. However, the increase in daily active users, which rose by nearly 18%, outpaced this top-line gain. This discrepancy signaled that the business had problems making money from its operations.
Investors were further alarmed by the social media company’s admission that it was difficult to forecast the near-term economic environment. The business cited “uncertainties relating to the operational environment” as the reason it chose not to publish Q3 estimates.
The release of the results sparked a flurry of SNAP downgrades. For instance, Brian Nowak, an analyst at Morgan Stanley, downgraded Snap from Overweight to Underweight and lowered the price objective to $8. Deepak Mathivanan, an analyst with Wolfe Research, lowered SNAP from Outperform to Peer Perform.
Overall, SNAP has decreased by about 79 percent in 2022. Over the last 12 months, its fall has increased to 84%. The stock went public through an IPO with a share price of $24. Late last year, it reached a high of $83.34, but it is currently more than 58% below its IPO price.
The most recent decline also brought SNAP to its lowest levels since March 2020, when the market collapsed due to the initial COVID shutdowns. The stock’s low point at the time was $7.89. Before going public in 2017, the stock temporarily fell below $5 in 2018.
The outcomes of SNAP put pressure on others via social media and the internet. This included decreases in Pinterest, Alphabet (GOOG), and Meta Platforms (META) (PINS). Meanwhile, Twitter (TWTR) traded based on its financial performance and the controversy surrounding its failed acquisition agreement with Elon Musk.
Later this week, META and GOOGL will release their results.
SNAP: Is it a Buy?
SNAP got solid support on Wall Street before the earnings report. Thirteen of the 41 analysts contacted by Seeking Alpha rate the stock as a Strong Buy, while another six rate it as a Buy.
However, a substantial number of analysts have long viewed SNAP with skepticism. The 20 analysts assigned Hold ratings as an example of this ambiguity. The stock was given a Sell rating by one analyst and a Strong Sell by another simultaneously.
Quant Ratings from Seeking Alpha, however, support the bears on Wall Street. According to the system for quantifiable rating data, the stock receives an F for valuation and momentum. The stock received a D+ grade for profitability from Quant Ratings as well. A B+ for growth slightly offsets this.
Paul Franke, a contributor to Seeking Alpha, describes the stock as being in a bottom fishing position and sees chances with SNAP. According to Franke, following a historic price drop in the Big Tech sector, SNAP is trading at its lowest valuation based on trailing operating statistics. Another SA contributor, The Asian Investor, rates SNAP as a hold and claim that purchasing the stock was a grave error.
Featured Image: Megapixl © Frui
