Snap (NYSE:SNAP) stock has been doing relatively well compared with Meta Platforms (NASDAQ:FB).
But relative performance doesn’t make for profit. Shares in SNAP are down 36% so far in 2022. Over the last year they’re down 53%. Long-term investors are still up 164% over two years. But at the stock’s September high they were up 632%.
Snap opened on March 16 at $30.86. That’s a market cap of $56 billion on 2021 revenue of $4.1 billion. Snap did deliver positive free cash flow of $161 million in its most recent quarter. There was even net income of $22.5 million, 1 cent per share.
But the stock isn’t cheap.
The Bull Case for SNAP Stock
The bull case for Snap, which is built around pictures rather than Twitter’s (NYSE:TWTR) text, Meta’s communities or TikTok’s videos, is that it’s still very popular among users under 35 who are leaving older platforms.
Deutsche Bank recently initiated coverage in SNAP with a buy rating and a price target of $45. Analyst Benjamin Black especially likes what he calls “supportive network effects across younger demos.” In other words, Twitter is for your dad.
SNAP stock did especially well in February, rising 23%. This came after Meta delivered its famously bad earnings release.
At issue are privacy changes initiated by Apple (NASDAQ:AAPL), and now being partly copied by Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). These changes limit the ability of advertisers to track users across the internet, creating demographic and psychographic profiles. Snap’s results indicate it wasn’t as hurt as badly as other sites by the changes.
Snap has also been smart in its acquisitions, buying Fit Analytics last year for just $124 million. The German company helps people buy what they see online. Moving from advertising to e-commerce is a smart move. Bulls expect more moves like this.
The Bear Case for SNAP Stock
When analysts say something is a better investment than something else in a bad environment, that doesn’t make it a good investment.
Snap stock fell hard throughout the fourth quarter, so if you were holding it last fall you suffered. A stock that can fall 20% one day then rise 60% the next isn’t an investment — it’s a meme.
Wells Fargo analysts are especially high on Spotlight, Snap’s answer to TikTok. This has been very successful in India, where TikTok is banned.
There are now 30 analysts following SNAP stock at TipRanks. Their average price target is almost 67% above where the stock was trading March 16. But while 21 say buy it, 9 have that deer in the headlights look, saying hold it. That’s small comfort for those who took a bullish call at $70.
Snapchat is selling ads in the middle of its stories, just like Paramount Global (NASDAQ:VIAC), formerly ViacomCBS. That’s not a recommendation. Watching Chief Financial Officer Derek Anderson cash out $1 million in shares at about $40 also doesn’t give bears the warm and fuzzies.
The Bottom Line
Social networking is no longer a stable business. Reputation among users matters a lot. Governments are cracking down in various ways around the world. Content creators are organizing. Past performance is no guarantee of the future.
Snap has navigated these waters better than its rivals. But it’s no TikTok. Uncertainty is rising throughout the sector, and I don’t want my investments hanging on what tomorrow’s teenagers are going to want.
On the date of publication, Dana Blankenhorn held a long position in AAPL and GOOGL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
