Snap Is Getting Ready to Launch AR Glasses. Does That Make SNAP Stock a Buy?
Social media company Snap (SNAP) is seeing some lift in its beaten-down stock after the company announced the launch of its lightweight, immersive spectacles next year. These techy eyeglasses are part of the company's aggressive push into augmented reality (AR) products, which are expected to be endowed with artificial intelligence (AI) capabilities. However, Snap has stiff competition in this space, primarily from Meta's (META) Ray-Ban Meta smart glasses, which are generally well-accepted by customers.
At this juncture, should you consider buying Snap's stock?
About Snap Stock
Founded in 2010, California-based tech company Snap (SNAP) operates a social media platform that offers the visual messaging application Snapchat. In addition to visual communication, the company is also focused on areas such as augmented reality and camera technology. Snap has a market cap of around $14.3 billion.
Once a soaring name on Wall Street, Snap's stock has fallen on hard times recently. It has declined 47% over the past 52 weeks and 23% year-to-date. Just for comparison, the broader S&P 500 Index ($SPX) has gained 11.5% and 2.7% over the same periods. Snap recorded a 52-week high of $17.33 back in July 2024. The stock is now 52% off its high.
Despite the stock's recent selloff, Snap is not exactly a cheap buy. Its price sits at 30.21 times forward non-GAAP earnings, which is significantly stretched compared to the industry average of 13.85x.
Snap's Q1 Results Surpassed Expectations
On April 29, Snap published its first-quarter results, which failed to impress investors, and the stock experienced a sharp 12.4% selloff in the very next trading session. The company's revenue increased by 14% year-over-year to $1.36 billion. The reported figure slightly surpassed the $1.35 billion that Wall Street analysts had expected.
At the heart of this double-digit revenue increase was Snap's increase in active users. For Q1, the company's daily active user (DAU) count went up by 9% from the prior year's period to 460 million. While DAUs dropped by 1% in North America and grew slowly by 3% in Europe, the rest of the world segment's DAU numbers grew by 16% year-over-year.
Snap's average revenue per user (ARPU) increased by 5% from its year-ago value to $2.96. Snap's ARPU from the North American segment grew by 13%, followed by growth in the European market at 11%, and then the rest of the world at 4%.
Based on the top-line and customer growth, Snap managed to gain back some lost ground. While the company still posted a quarterly net loss of $139.6 million, it was significantly lower than the $305.1 million net loss from the year-ago quarter. Its loss per share stood at $0.08, narrower than the $0.19 in Q1 2024 and better than the $0.13 that Wall Street analysts were expecting. Its adjusted EBITDA jumped by a staggering 137% year-over-year to $108.43 million, surpassing the estimated $64.77 million.
Snap's Q1 results were not unimpressive. Its top line grew, customer count expanded, and bottom-line losses narrowed. Yet, the company's share prices took a hit because Snap was unable to provide an outlook for the second quarter. The company cited uncertainty due to the macroeconomic pressures as a reason for this. Snap did mention that it had faced headwinds at the start of the current quarter.
Analysts do not have high expectations about Snap's future earnings, projecting its Q2 EPS to decline by 23.1% year-over-year to a negative $0.16. For the current year, Snap's loss per share is expected to come in at $0.39, indicating a worsening of 11.4% year-over-year. The situation is expected to improve in the next fiscal year, when the loss per share is projected to narrow by 28.2% to $0.28.
What Do Analysts Expect for Snap Stock?
Analysts have started to turn sour on Snap's stock. Last month, Loop Capital analyst Alan Gould lowered Snap's price target from $16 to $12, while still maintaining a 'Buy' rating on the stock. While Loop Capital did not reverse its verdict on the stock, the lowering of the price target reflects that analysts are taking a more conservative stance on the company's potential.
Morgan Stanley is also pretty conservative about Snap's prospects. Analyst Brian Nowak lowered the price target from $8 to $6.50, while maintaining an 'Equal Weight' rating. Earlier, the investment firm had lowered its price target from $10 to $8 due to macroeconomic uncertainties affecting e-commerce and digital ad sectors. The latest price cut likely stemmed from the same set of reasons.
Overall, Wall Street analysts are taking a conservative stance on Snap's stock, giving it a consensus 'Hold' rating. Based on 36 analysts' ratings, seven analysts have given the stock a 'Strong Buy' rating, one rated the stock as a 'Moderate Buy,' and one analyst rated it 'Strong Sell,' while a majority of 27 analysts are playing it safe with a 'Hold' rating. The consensus analyst price target of $9.72 indicates moderate potential upside of 14% from current levels.
Key Takeaways
Snap's AR push through the new eyeglasses is commendable. However, the launch is still too far away to be meaningful for shares here.
Meanwhile, the company faces challenges from the current macroeconomic scenario, which has been marred by concerns about tariffs. Therefore, investors might consider putting off investing in Snap's stock for now.
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