Snap recently saw its biggest one-day share price drop thanks to apple’s update, but it’s the one social media stock I’m buying right now
Oct. 28, 2021
Last week, Snap Inc. (NYSE: SNAP), owner of the popular Snapchat app, saw a 27% drop in its stock price, its biggest one-day price drop ever. This was following its third-quarter earnings report which saw the company miss revenue estimates and lowers its guidance further for Q4. Snap blamed Apple’s new iOS update which allows users to opt-out of tracking their activity and thereby impacting targeted ads; additionally, it blamed supply chain disruptions for affecting ad buys as well.
Many analysts feel that now is the time to snatch up shares for this long-term growth company as they’re available at a considerable discount. There is no doubt in my mind that Snap will find a workaround to this iOS setback and is the only social media stock I’m buying right now.
A look at Snap’s financials
Contrary to what recent trading activity might indicate, Snap’s Q3 earnings report wasn’t all gloom and doom. It might’ve missed revenue projections by $30 million, but year-over-year (YoY), its revenue is up 57% and its average revenue per user increased by 28%. Furthermore, both operating margin and adjusted gross margin improved by 32% and 3.5%, respectively, in the same time period. Finally, the company projects to exceed analyst expectations on daily active users (DAUs) for Q4 by 4 to 6 million.
Year-to-date (YTD), Snap’s stock price is even up over 5%, which is something considering its recent decline.
What I like about Snap
The social media realm faced incredible pandemic tailwinds that one would expect to abate once normalcy resumed. However, the analysis for Snapchat showed just the opposite. In fact, in January of this year, Snap’s download ranking was roughly 12 and in April it went up to 6. The reason is that people are returning to bars, restaurants, and other social venues and sharing it on social media apps like Snapchat.
Having returned to the dating pool recently, I’ve noticed that whenever a match wants to take things offline, more often than not, they’ll share their Snapchat account info. That way a couple can exchange temporary photos with one another using Snap’s rich assortment of lenses, filters, and proprietary Bitmoji; moreover, users can video chat with up to 16 users at once. With 48% of users falling into the under 25 age group, Snap has a lot of potential business to attract older users.
Risks to Snap’s share price
Based on its last earnings report, Snap missed guidance not only on revenue but also on one other important metric as well: average revenue per user (ARPU), by $0.18. Snap is no stranger to controversy as a few years ago, several employees spied on users using an internal tool. Also, eyebrows were raised recently when rumors surfaced of Google Cloud (which Snap employs) using servers in Saudi Arabia and exposing user data to that country’s government.
Snap’s growth potential
Snap has shown resilience coming out of the pandemic and will continue to thrive as it recruits older users. The investment is all the better for currently being on sale.
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