Snap (NYSE:SNAP) took a beating after it reported its third-quarter earnings last week, despite surpassing analysts’ average expectations on revenue and EPS and adding 7 million new users during the quarter.
Weak Q4 guidance was a big part of the reason for the stumble that resulted in SNAP stock falling 6% to $13.19 the following day.
But on Monday, SNAP stock price closed at $14.68, posting a big 5.2% gain on the day. Snapchat stock is now slightly below that level, and it’s still way off the $17 price it was trading for a little over a month ago.
With SNAP stock price trending up again and considerably above the level it had reached only a month ago, is now the time to buy the shares?
Why SNAP Stock Price Was Punished Despite the Q3 Earnings Beat
Many early investors in SNAP stock found themselves questioning their decision as the company struggled to monetize its user base. Hundreds of thousands of unsold camera-equipped Snap Spectacles gathered dust in warehouses. Snapchat’s user growth was slowing, and through 2018 the company weathered layoffs and a Snapchat redesign that negatively impacted its average revenue per user. Adding insult to injury, Facebook’s (NASDAQ:FB) Instagram copied many of Snapchat’s most popular features.
As 2018 closed, both the Department of Justice and the SEC were investigating Snap over allegations that, during its IPO, the company had misled investors about the risks posed by competitors like Instagram. SNAP stock lost 61% of its value through 2018.
2019 has been a breath of fresh air for the company. In Q1, Snapchat added as many users as it had in the past five quarters combined, posting 39% revenue growth and an earnings beat. In Q2, Snapchat reported adding another 13 million users and 38% revenue growth. Further, SNAP once again beat analysts’ average earnings projections. As July wound down, Snapchat stock was trading at $17.89, representing a gain of nearly 225% on the year.
That takes us to SNAP’s Q3 results, which it reported after the market closed on Oct. 22. Snapchat added another 7 million users, and its revenue of $446 million was up 50%. And importantly, its 4 cent per share loss beat analysts’ average outlook of a 5 cents per share loss.
That sounds like a recipe for a continued rally of SNAP stock price, but instead SNAP stumbled. One concern was that of the 7 million new users, only 1 million of them were from North America and Europe. In those regions, the company’s average revenue per user is highest. In addition, the company’s Q4 guidance of between 214 million and 215 million daily active users and revenue in the $540 million to $560 million range was lower than analysts were expecting.
SNAP Stock Has Beaten Its Peers in 2019
Despite weakening throughout October, SNAP has performed very well in 2019. It’s shown solid and quite consistent growth, posting an impressive gain. Other social media companies have had a rougher time, facing government probes over alleged privacy violations, monopolistic behavior and election-related posts.
Facebook stock is up 43% in 2019, while Twitter (NASDAQ:TWTR) has eked out just 4% growth to this point. If you were going to invest in a social media stock at the start of 2019, Snap has definitely turned out to be the horse to bet on.
The Bottom Line on Snapchat Stock
Analysts aren’t convinced that the current rebound of SNAP stock price is going to continue, but they do think the shares will do pretty well in the medium term. Of 41 analysts surveyed by The Wall Street Journal, 25 have a “hold” rating on SNAP stock, compared to 15 “buys.” But their average 12-month price target on SNAP stock is $18.01, showing faith that SNAP stock will climb over the next year.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.