Technology company Snap Inc. (SNAP) is well-known for offering Snapchat, a visual messaging application that enables people to communicate visually through short videos and images.
The company is investing in Augmented Reality (AR) technology. In March, SNAP introduced AR Enterprise Services (ARES), an enterprise solution that enables businesses to integrate its AR into their owned and operated channels easily and at scale. ARES’ first solution, ‘Shopping Suite,’ provides tools for virtually trying on fits.
However, its revenue decline in the last reported quarter raises some concerns. For the fiscal first quarter (ended March 31), SNAP’s revenue decreased 7% year-over-year to about $989 million, missing analysts’ estimate of $1.04 billion.
Insider Intelligence principal analyst Jasmine Enberg believes the weak topline performance "is a signal of deep challenges at the company."
Given this backdrop, let’s look at some of its key financial metrics trends to understand why it could be wise to avoid the stock now.
Analyzing Snap Inc.'s (SNAP) Financial Performance
The gross margin of SNAP has shown an overall increasing trend with minor fluctuations from June 2020 to March 2023. Here are the key highlights: In June 2020, the gross margin was 49.00%. By September 2020, it increased to 51.30% and then rose to 52.80% by December 2020.
Gross margin experienced a slight decrease to 52.30% in March 2021 but resumed the upward trend in June 2021 with 54.00%. The value peaked at 61.20% in June 2022 and September 2022. Lastly, it descended to 60.60% in December 2022 and further decreased to 59.50% in March 2023.
The calculated growth rate from June 2020 (49.00%) to March 2023 (59.50%) is approximately 21.43%. Emphasizing the more recent data and the last value in the series, it can be concluded that there has been consistent growth, albeit with minor fluctuations, over the period.
The trend and fluctuations of the Return on Assets (ROA) SNAP can be summarized as follows:
- June 2020: -26.7%
- September 2020: -24.6%
- December 2020: -20.5%
- March 2021: -18.9%
- June 2021: -13.8%
- September 2021: -10.4%
- December 2021: -7.4%
- March 2022: -7.4%
- June 2022: -10.3%
- September 2022: -13.3%
- December 2022: -16.8%
- March 2023: -17.0%
In general, SNAP has shown a trend of gradual improvement in its ROA from June 2020 to December 2021. However, since then, the company's ROA has declined gradually, with the last value recorded at -17.0% in March 2023.
The growth rate, calculated by measuring the last value from the first value, is approximately a 36.3% improvement from June 2020 to March 2023. Emphasis on more recent data shows that the ROA for SNAP has declined from -7.4% in March 2022 to -17.0% in March 2023.
The asset turnover of SNAP has experienced fluctuations over the observed period. Here is a summary of the data: In June 2020, asset turnover was 0.47. It increased to 0.50 by September 2020 and continued rising to 0.54 by December 2020. The upward trend persisted in 2021, reaching 0.57 in March, 0.62 in June, and maintaining at 0.62 in both September and December.
However, from March 2022, asset turnover started to decline. It fell to 0.58 in March, 0.56 in June, and 0.55 in September. By December 2022, it dropped further to 0.54. The most recent data, as of March 2023, shows an increase in asset turnover to 0.55.
The growth rate from June 2020 to March 2023 is approximately 17.6%. Despite the fluctuations, the company has experienced growth in asset turnover with greater emphasis on the more recent data and the last value in the series (0.55).
The analyst price target for SNAP showed a declining trend and several fluctuations from November 2021 to June 2023. Here's a summary of the key points: The price target began at $76 in November 2021. It declined gradually, reaching $60 in April 2022 before experiencing a sharper decline to $30 by June 2022.
The price target then continued to decrease, touching its lowest point of $9.8 in June 2023. As of the last value in the series (June 13, 2023), the price target reached $10. The overall growth rate from the first value to the last value is -86.84%. Notable dates and price targets:
- November 12, 2021: $76
- April 1, 2022: $60
- June 3, 2022: $30
- July 29, 2022: $14
- September 9, 2022: $13.5
- October 28, 2022: $11.6
- December 30, 2022: $10
- June 9, 2023: $9.8
- June 13, 2023: $10 (last value)
Emphasis on recent data shows a consistent value of $10 from December 2022 onwards, with a slight dip to $9.8 in June 2023 before recovering back to $10.
Analyzing SNAP Share Price Trends: Growth, Fluctuations, and Recovery (December 2022 - June 2023)
The data provided exhibits the trend and growth rate of SNAP share prices from December 16, 2022, to June 12, 2023. Here's a summary of the key observations:
- December 16, 2022: $8.67
- December 23, 2022: $8.43
- December 30, 2022: $8.68
- January 2023: The share price increased from $9.12 on January 6 to $9.60 on January 20 before reaching $10.17 on January 27.
- February 2023: SNAP experienced continuous growth, peaking at $11.54 on February 10. Afterward, the share price declined to $10.79 on February 17 and further dropped to $9.91 by the end of the month.
- March 2023: The share price exhibited fluctuations this month, with the price initially increasing to $11.27 on March 10, only to drop to $10.52 on March 17. It rose again to $11.28 on March 24 but decreased to $11.15 by the end of the month.
- April 2023: SNAP share prices experienced a general downward trend during April, dropping from $10.81 on April 6 to $9.78 by the end of the month.
- May 2023: The share price hit a low of $8.27 on May 5 but rebounded to a higher value of $9.90 by May 26.
- June 2023: The share prices continued to grow, reaching $10.33 on June 9 before dropping slightly to $10.23 on June 12.
In conclusion, the overall trend for SNAP share prices from December 16, 2022, to June 12, 2023, is an initial increase followed by fluctuations and a general downward movement in April 2023. The share prices then recovered and maintained growth until mid-June 2023, with no clear acceleration or deceleration rates. Here is a chart of SNAP's price over the past 180 days.
SNAP’s Bleak POWR Ratings
Based on the data provided, SNAP's overall POWR Ratings grade consistently remains at a D, which equates to Sell from December 17, 2022, to June 10, 2023. The latest value is from June 10, 2023, with a rank-in-industry of #53 out of 58 Internet stocks.
It's vital to note that during this period, SNAP's rank fluctuates moderately between #50 and #56, with a lower value indicating a better ranking. For instance, SNAP attained its best rank of #50 between May 13 and May 20, 2023.
SNAP has a D grade for Growth, Stability, and Sentiment.
How does Snap Inc. (SNAP) Stack Up Against its Peers?
Other stocks in the Internet sector that may be worth considering are trivago N.V. (TRVG), Travelzoo (TZOO), and Yelp Inc. (YELP) - they have better POWR Ratings.
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SNAP shares were trading at $10.26 per share on Tuesday afternoon, up $0.03 (+0.29%). Year-to-date, SNAP has gained 14.64%, versus a 14.61% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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