Snap SNAP shares have skyrocketed 190% since March 18 to crush fellow stay-at-home coronavirus standouts such as Zoom ZM, Amazon AMZN, and Netflix (NASDAQ:NFLX) NFLX. The company’s Snapchat app has expanded its users base and bolstered its appeal to both consumers and advertisers.
The question is should investors consider buying Snap stock ahead of its upcoming second quarter earnings release on Tuesday, July 21 for its ability to expand during the pandemic-induced economic downturn and beyond?
Non-Disappearing Appeal
Snap is still famous for its disappearing photo and video sharing app called Snapchat, and the firm likely doesn’t get enough credit for constantly adapting and evolving as Facebook (NASDAQ:FB) FB and Instagram copycat its best and newest offerings. Yet Snap struggled after its March 2017 IPO because advertisers found it difficult to monetize.
Snap has slowly improved its ad-based offerings and marketers are now falling in love with what it calls an “unduplicated and hard-to-reach audience.” The social media company that still refers to itself as “a camera company” claims that in the U.S. it reaches “more than 90% of 13 to 24 year-olds and more than 75% of 13 to 34 year-olds.”
In an age where hundreds of millions of people pay for the ability to avoid ads across Netflix, Spotify SPOT, Disney+ DIS, and countless others, Snapchat becomes even more valuable. And the percentage of total U.S. ad budgets spent on digital channels will expand from 54% in 2019 to 67% by 2023, according to eMarketer.
Snap continues to releases various augmented reality features and Lenses, and its Discover page and Happening Now offerings have become popular. Plus, Snap’s portfolio also includes its own original video content and it announced in June expanded deals with the likes of NBCUniversal, the NFL, and stars such as Kevin Hart. Snap has also bolstered its mobile gaming space since it launched in the spring of 2019, highlighted by its partnership with mobile gaming standout Zynga (NASDAQ:ZNGA) ZNGA.
Other Fundamentals
Snap’s Q1 revenue surged 44% to top the year-ago period’s 39% revenue. Snap also reported a smaller adjusted loss per share, and its daily active user count jumped 20% to come in at 229 million for the period ended on March 31—Twitter TWTR closed Q1 with 166 million DAUs.
Snap also posted its first-ever quarter of positive operating cash flow in Q1, and its overall cash position helps it sport a solid balance sheet.
As we touched on at the top, Snap has gone on an impressive run during the market’s comeback, up 190% since March 18. This is part of a much larger climb since late 2018 when Snap shares sat at under $6. Despite the expansion, the stock closed regular trading Wednesday at $24.54. This came in below its recently reached 52-week highs of over $26 and 17% under its all-time intraday highs that it hit early on.
Bottom Line
Moving on, our Zacks estimates call for Snap’s Q2 FY20 revenue to jump 12%, with its fiscal 2020 sales projected to climb 22.5% to hit $2.10 billion. This represents a slowdown from the last several years, but that’s to be expected as advertisers cut back on spending amid the coronavirus economic uncertainty.
Plus, Snap looks even stronger by comparison, with Google’s GOOGL quarterly revenue projected to dip and Facebook expected to pop just 1.9%. And Snap’s fiscal 2021 revenue is then projected to soar 41% above our FY20 estimate to nearly $3 billion.
Snap’s adjusted full-year loss is expected to expand from -$0.16 to -$0.21 per share in 2020. But the firm’s projected to swing all the way to positive earnings of +$0.12 a share in fiscal 2021.
Snap’s strong earnings revisions trends help it hold a Zacks Rank #2 (Buy) right now, alongside its “A” grades for Growth and Momentum in our Style Scores system.
Clearly, playing stocks around earnings is risky. But longer-term investors might want to take a chance on Snap, which trades at $25 per share, for its ability to attract consumers and advertisers in our smartphone world.
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