• Snap (SNAP) rents cloud capacity rather than owning and building it as Meta does.
• Its view on the metaverse is both practical and collegial.
• The stock price has fallen but remains expensive.

Snap (NYSE:SNAP) stock moved big on earnings in February. But the argument for the stock now has more to do with the future.

The stock price cratered in February after Meta Platforms (NASDAQ:FB) reported its earnings, then snapped back after it showed a small profit.

Traders were expecting another small profit for the March quarter, maybe one to four cents per share on revenue of $1.07 billion. Those numbers will be reported after the market’s close on April 21.

But wherever it lands, analysts are now pounding the table for Snap based on its metaverse strategy. That strategy seems more practical than that of Meta, with more immediate customer benefits, thus more immediate profit opportunities.

Snap In

Since its founding in 2012, Snap has been mainly seen as a younger, hotter alternative to social networks like Facebook. Snapchat is focused on photos and video, and media posted to it quickly disappears. It’s based in Santa Monica, not Silicon Valley. Its CEO, Evan Spiegel, is even younger than Meta’s Mark Zuckerberg and with a more relatable personality.

But before the pandemic, Zuckerberg’s stock outperformed Spiegel’s. Snap was seen as a Facebook “mini-me.” It was only after Facebook’s image cratered that Snap stock came into its own, rising faster in early 2021. As Facebook became Meta and put a bad odor on all social media stocks, however, Snap stock caught the funk. Since peaking in September, it’s down by nearly 60%.

It’s still not cheap. At a bit under $31 per share at the start of April 21, Snap has a market cap of $51 billion on 2021 revenue of $4.1 billion. The fourth quarter profit didn’t make up for losses earlier in the year, but for the 12 months there was $342 million in operating cash flow.

Into the Future

While Meta is completely rewriting its software based on a mix of augmented reality, virtual reality and blockchain features known as Web3, Snap is being more strategic.

Its focus is on augmented reality and hardware called Spectacles that can display data about the world in front of a user’s eyes as they traverse.

Spectacles have a business case. They can direct technicians through repairs or drivers around crowded cities. Achieving mass adoption will take time, but offers obvious marketing opportunities, placing relevant offers near the point of purchase.

Snapchat is also more collegial than Meta ever was, offering users the chance to share videos from Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) YouTube directly through its camera. The press release on the new feature used terms like “integration” and “partnership,” our David Moadel writes. Snap is not going to become an island.

Snap can’t isolate itself, because unlike Meta, which delivers its services through cloud data centers it owns, Snap has to rent capacity from Cloud Czars like Amazon (NASDAQ:AMZN), Alphabet or Microsoft (NASDAQ:MSFT). In this way it’s a lot like Netflix (NASDAQ:NFLX), which fell hard after its subscriber growth disappointed.

But some analysts, like our Muslim Farooque, see this weakness as a strength. Snap must accommodate both users and advertisers. It must respond positively to things like the Ukraine war, inflation and smaller advertising budgets.

The Bottom Line on SNAP Stock

Despite the fall in its stock price, Snap remains expensive when compared with the general market. It’s a marginally-profitable business selling at over 12 times revenue. It offers growth that could reach 40% this year, but the market isn’t paying a premium for growth.

Snap has attracted analysts, investors and users disgusted with Meta’s policies and plans. But it remains dependent on other cloud players for the technical resources to reach the market.

If it can make its metaverse plans work, Snap will prove its worth. But that’s speculation. Tech investors don’t need to speculate in the current market. I don’t expect Snap to outperform until the environment changes.

On the date of publication, Dana Blankenhorn held long positions in MSFT, GOOGL, and AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.