Along with the rest of the social media sector, shares of Snap (SNAP) have been in a grueling downward slide. After hitting an all-time high of $83 in September, the stock price has since fallen to $35. Snap stock has not traded at this level since October 2020.
What now? Well, finding the bottom is pretty tough. The markets are extremely volatile and investors have gone cold on growth stocks.
Regardless, there are some interesting catalysts for Snap stock, especially with the Metaverse.
So, I’m bullish.
Performance
In the latest quarter, Snap reported a 57% jump in revenues to $1.067 billion. Yet the Wall Street consensus was calling for $32 million more.
The quarterly guidance was also under expectations. The company projected revenues of $1.17 billion to $1.21 billion. Analysts’ consensus was for a more robust $1.36 billion.
Yes, Snap reported another loss, which came to $72 million. Keep in mind though, that this was a 64% improvement from last year. In other words, the company is demonstrating leverage as revenues continue to grow quickly. Note that operating cash flow was $72 million, up from a loss of $55 million in the same period a year ago.
A nagging issue for Snap stock is the impact from Apple’s (AAPL) changes to its privacy policies. It requires an opt-in to include user information, which has made it more difficult for social media companies to capitalize on data. This has put pressure on the top line as advertisers have less effective ways to target their marketing campaigns.
In the meantime, there are concerns that Congress will get more aggressive with regulations for social media companies. There appears to be bipartisan support for this. Although, it is unclear what the overall impact would be.
Catalysts for Snap Stock
While Snap faces some tough challenges, there are definitely silver linings. First of all, the company is taking actions to use first-party tools to lessen the impact from Apple’s privacy policies.
Next, Snap continues to show impressive strength with user growth — which is essential for social media platforms. In the quarter, the daily active users increased by 23% to 306 million.
Something else: There are several important events that will help boost advertising revenues this year. They include the Winter Olympics in China, The FIFA Men’s World Cup, and the midterm elections in the U.S.
One of the most interesting catalysts for Snap stock is the emergence of the metaverse as a big growth opportunity. Of course, Facebook (FB) has suddenly made this mainstream with its ambitious plans for creating virtual worlds. The company even changed its name to Meta Platforms.
Interestingly enough, Snap already has made lots of progress with the metaverse. A big part of this has been the heavy investments in AR (Augmented Reality) and smart glasses, which are called Spectacles.
The technologies are not just experiments. They are getting traction with major customers. Just look at Snap’s TrueSize feature. This allows for immersive shopping experience – say with showing clothes on a person — and has gotten adoption from companies like Nike (NKE) and FarFetch (FTCH).
Snap also has a powerful set of tools that make it easy to create fun and engaging 3D animations. There is also a program to spend over $1 million each day for creators to develop content.
Wall Street’s Take
Turning to Wall Street, analysts are bullish on Snap stock, with a Strong Buy consensus rating based on 21 Buys and seven Holds. There are no Sell ratings on the stock.
The average Snap price target of $70..19 implies 100.6% upside potential.
Conclusion
The metaverse opportunity is in the early phases, and it is not clear how big it will be. However, it does seem like a good bet that the online world will become increasingly more realistic and immersive.
As for Snap, it is positioned nicely for this. It has the benefit of using AR at scale. There has also been success with monetization. The young demographic of the user base is another benefit. This group is certainly more willing to try new technologies.
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