Investors searching for a social media stock are currently considering Snap (NYSE:SNAP). However, it is difficult to recommend SNAP stock because despite its relative strengths, it simply isn’t moving upward.
That is a problem after the camera company and parent of Snapchat had its best day ever six weeks ago. And it is part of a longer downward trend that has seen Snap’s equity value more than halve since October.
In a volatile world, the stock market is having a tough time figuring out where SNAP stock ought to trade. There is no indication that a clear bottom has been reached by any means.
The Problem
Even though Snap posted its first-ever net income in the fourth quarter (Q4), reaching about $23 million, it has struggled to maintain much positive momentum. Yes, when it posted those numbers on Feb. 4, SNAP stock jumped from $24.50 to nearly $39, having its best day ever. But a month-and-a-half later, it is near the $35 mark after dipping to the low-30s.
Bullish investors have given Snap kudos based on the notion that it has weathered Apple’s (NASDAQ:AAPL) iOS changes better than Meta Platforms (NASDAQ:FB) has. But the truth is that those changes continue to keep Snap lower than it was.
Those changes meant that Apps on Apple devices must ask users to opt into ad tracking. Those changes particularly hurt Meta by fundamentally changing the way it could deliver personalized ads.
But they also hurt Snap. The idea that Snap is better off after the changes hasn’t panned out. And the idea that Snap is a buy because it suffered less than Meta also makes little sense.
Meta stated that it would lose $10 billion of revenue due to the changes, but that tells little about how Snap will fare. The company posted an earnings beat and its first quarter of earnings on Feb. 4. That was enough to silence bears, but only temporarily.
Greater Trend
The greater trend remains: Apple’s iOS changes signified a clear downtrend for Snap. The changes were implemented long ago. When Snap posted disappointing numbers in Q3, Apple’s iOS changes came back into focus.
The company’s share prices remain much lower than they were when that happened in mid-October of last year. Yes, Snap has weathered the storm better than Meta, but it is still in the storm, nonetheless.
Snap is still adjusting to the changes handed down by Apple. Indications were that Snap has done better according to broad assertions like those in this article.
But the idea that Snap is doing better is simply borne out of the notion that it posted a surprise earnings beat in Q4 and little else. That likely explains some of the reasons that SNAP stock has floundered again following Feb. 4.
It is also fair to assert that Snap investors are concerned that the company’s first-quarter posting net income might have been a fluke.
Was it a Fluke?
Even though Snap posted a net income of $23 million in Q4, the company still posted a significant loss throughout 2021. That figure reached a near $488 million net loss. That can’t be discounted. It serves as fine tinder for bearish notions about the company moving forward.
That truth could easily be used to spark a narrative that SNAP stock was simply a fluke throughout 2021 and in early February when it posted its first positive net income figures.
What to do With SNAP Stock
Better than bad — Meta’s $10 billion loss – isn’t a compelling enough reason to invest in Snap.
There were plenty of positives to take from Snap’s year-end earnings report, but it seems they aren’t enough to make it a buy.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
