Snap (NYSE: SNAP) shares fell 6.9% on August 5, while the S&P500 index fell 3%. In contrast, Snap’s competitor Meta Platforms (NASDAQ: META) lost 3% on August 5. The decline in SNAP’s share price was partly due to weak second-quarter results and third-quarter guidance (which was released last week), and partly due to a rise in the unemployment rate that dampened investor sentiment. In particular, markets in general faced selling pressure after the release of July Non-Farm Payrolls data on August 2, as fears of a potential slowdown spooked investors. Overall, Snap’s current price of just under $9 is trading 34% below its fair value of just over $13 – Trefis’ estimate for Snaps Rating.

Given the current financial backdrop, SNAP stock has suffered a sharp 80% decline from $50 in early January 2021 to around $9 now, while the S&P 500 has risen by about 40% over that roughly 3-year period. However, SNAP stock’s decline has been far from consistent. The stock’s returns were -6% in 2021, -81% in 2022, and 89% in 2023. In comparison, the S&P 500’s returns were 27% in 2021, -19% in 2022, and 24% in 2023 – suggesting that SNAP lagged behind the S&P in 2021 and 2022. consistently beats the S&P 500 – for better or for worse – has been difficult for individual stocks in recent years; for heavyweights in the information technology sector such as AAPL, MSFT and NVDA and even for megacap stars GOOG, TSLA and AMZN. In contrast, the Trefis High Quality Portfolio with a collection of 30 stocks outperformed the S&P 500 every year In the same period. Why this? As a group, the HQ Portfolio stocks delivered better returns with less risk compared to the benchmark index; less of a rollercoaster ride as shown by the HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could SNAP face a similar situation as in 2021 and 2022 and perform worse than the S&P in the next 12 months – or will there be a recovery?

The company missed consensus estimates for revenue and worldwide average revenue per user in the second quarter. It reported total revenue of $1.24 billion – up 16% year over year, mainly due to a 9% year over year increase in average daily active users to 432 million and an increase in average revenue per user from $2.69 to $2.86. On the cost side, operating loss in the quarter was reduced 37% year over year to $254 million. Overall, the company reported a net loss of $248.6 million, compared to net loss of $377.3 million in the year-ago period.

Revenue increased 18% year-over-year to $2.43 billion in the first half of fiscal 2024, driven by growth in both DAU and ARPU. In addition, operating expenses as a percentage of revenue decreased during the same period. Overall, net loss narrowed from $706 million to $553.7 million.

Looking ahead, the company expects third quarter revenue to be between $1,335 million and $1,375 million, lower than consensus estimates. Overall, we forecast Snaps earnings remain at around USD 5.35 billion in FY20234. In addition, SNAP’s revenue per share is expected to improve to $3.31, which, coupled with a P/S multiple of 4, will result in a valuation of just over $13.

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