Insights

The Market Overreacted to This Cash-Lush Social Media Stock

Even though Snap’s (NYSE: SNAP) stock plummeted recently after it issued guidance that it wouldn’t be able to hit its projected revenue for the quarter, is this a long-term problem? In this video clip from “The Virtual Opportunities Show” on Motley Fool Live, recorded on May 24, Fool.com contributor Travis Hoium outlines why he thinks the social media company is in a strong position to handle stock or business dips in the next several years.

Travis Hoium: Stock is down about 44% as we are recording right now. Massive reaction by the market and this is the reason why. This is an SEC filing that they put out yesterday. This is basically what it says is that since they issued guidance on April 21, this is what’s a little bit jarring. I think if you are an investor or an analyst is that this is about a month ago, they issued guidance.
They say that the macroeconomic environment has deteriorated further and faster than anticipated. As a result, they won’t be able to hit their revenue, or EBITDA guidance will be in the low end in Q2 2022 guidance range. This is where investors have to figure out what’s the dynamic here going on. I think it pulled up the wrong presentation. I’m going to try to pull up the right one.
They’re not going to be growing as quickly as they thought, but they are still going to be growing. That’s the dynamic that we have to think about because I think again this is a space where we are moving toward more digital advertising. But are they going to be growing at 30% a year for the next 10 years? Probably not. There’s going to be a little bit of upheaval there. Let’s see. I think this is telling for their business.
When I think about Snap’s business over the last few years, there’s a lot of questions about could they grow their user base and could they monetize those users? This is the trend that we’ve seen in their daily active users on average since Q1 of 2019. You see the trends are actually really strong. This is what I think is really impressive.
In this period here, this year period, this is when TikTok really took off. You would think that if any company is going to lose users to TikTok, it’s going to be Snap. That’s I think pretty encouraging. They’ve been able to grow revenue in a lot of their markets. I’ll go back to this. This is their Q4 numbers. Forty-two percent growth in the fourth quarter. Their daily active users grew 20%.
This is where things like their guidance for the quarter, they’re going to be light of what they said. But does that change fundamentally what this company is over the next 10 years? I don’t really think so. This was a jarring chart that I just pulled up.
Over the last five years, Snap’s revenue is up 600% and their stock is down 36%. This is one of these where sometimes the market gets freaked out about things that I think we’re overblowing here. Snap I think is in a lot better position than it was just a few years ago. They’ve proven that they can monetize their users. They do have a big advertising base.
The warning here was that they were not going to hit their guidance numbers. They’re going to pull back on hiring. This is another company that has said, basically, we were going to hire a bunch of people and now we’re not going to hire as many people. They’ve not said we’re going to lay off people.
What do you think about that? Do you pull back your expectations? Yeah, sure. Should the stock be down, what are we at here, like 80% since November of 2021? That seems excessive to me for a company that is generating a positive cash flow, growing its user base. There could be headwinds, but again, in this advertising business, this is something where I think we have to understand the nuance of what’s going on.
These are brands that are primarily advertising with them. If they pull back in April and May of 2022 because they are seeing consumer spending shift, that doesn’t mean that they’re going away. It just means that they’re going to change their spending maybe this month, maybe next month. But they’ve got to figure out summer, fall, holiday season is coming pretty quickly, how are we going to be advertising? Snap is still going to be one of the better options out there.
I can’t help but think that this is what the market overreacting to something that there wasn’t a lot of details given, just besides saying that they’re going to not meet their guidance for the quarter and the fact that it came only a month after they gave guidance. It’s a little bit jarring. That’s always some investors are worried about, but yeah, this is one that’s going to be interesting to watch given how quickly it’s fallen.Travis Hoium has positions in Snap Inc. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. –

Even though Snap‘s (NYSE: SNAP) stock plummeted recently after it issued guidance that it wouldn’t be able to hit its projected revenue for the quarter, is this a long-term problem? In this video clip from “The Virtual Opportunities Show” on Motley Fool Live, recorded on May 24, Fool.com contributor Travis Hoium outlines why he thinks the social media company is in a strong position to handle stock or business dips in the next several years.

Travis Hoium: Stock is down about 44% as we are recording right now. Massive reaction by the market and this is the reason why. This is an SEC filing that they put out yesterday. This is basically what it says is that since they issued guidance on April 21, this is what’s a little bit jarring. I think if you are an investor or an analyst is that this is about a month ago, they issued guidance.

They say that the macroeconomic environment has deteriorated further and faster than anticipated. As a result, they won’t be able to hit their revenue, or EBITDA guidance will be in the low end in Q2 2022 guidance range. This is where investors have to figure out what’s the dynamic here going on. I think it pulled up the wrong presentation. I’m going to try to pull up the right one.

They’re not going to be growing as quickly as they thought, but they are still going to be growing. That’s the dynamic that we have to think about because I think again this is a space where we are moving toward more digital advertising. But are they going to be growing at 30% a year for the next 10 years? Probably not. There’s going to be a little bit of upheaval there. Let’s see. I think this is telling for their business.

When I think about Snap’s business over the last few years, there’s a lot of questions about could they grow their user base and could they monetize those users? This is the trend that we’ve seen in their daily active users on average since Q1 of 2019. You see the trends are actually really strong. This is what I think is really impressive.

In this period here, this year period, this is when TikTok really took off. You would think that if any company is going to lose users to TikTok, it’s going to be Snap. That’s I think pretty encouraging. They’ve been able to grow revenue in a lot of their markets. I’ll go back to this. This is their Q4 numbers. Forty-two percent growth in the fourth quarter. Their daily active users grew 20%.

This is where things like their guidance for the quarter, they’re going to be light of what they said. But does that change fundamentally what this company is over the next 10 years? I don’t really think so. This was a jarring chart that I just pulled up.

Over the last five years, Snap’s revenue is up 600% and their stock is down 36%. This is one of these where sometimes the market gets freaked out about things that I think we’re overblowing here. Snap I think is in a lot better position than it was just a few years ago. They’ve proven that they can monetize their users. They do have a big advertising base.

The warning here was that they were not going to hit their guidance numbers. They’re going to pull back on hiring. This is another company that has said, basically, we were going to hire a bunch of people and now we’re not going to hire as many people. They’ve not said we’re going to lay off people.

What do you think about that? Do you pull back your expectations? Yeah, sure. Should the stock be down, what are we at here, like 80% since November of 2021? That seems excessive to me for a company that is generating a positive cash flow, growing its user base. There could be headwinds, but again, in this advertising business, this is something where I think we have to understand the nuance of what’s going on.

These are brands that are primarily advertising with them. If they pull back in April and May of 2022 because they are seeing consumer spending shift, that doesn’t mean that they’re going away. It just means that they’re going to change their spending maybe this month, maybe next month. But they’ve got to figure out summer, fall, holiday season is coming pretty quickly, how are we going to be advertising? Snap is still going to be one of the better options out there.

I can’t help but think that this is what the market overreacting to something that there wasn’t a lot of details given, just besides saying that they’re going to not meet their guidance for the quarter and the fact that it came only a month after they gave guidance. It’s a little bit jarring. That’s always some investors are worried about, but yeah, this is one that’s going to be interesting to watch given how quickly it’s fallen.

Travis Hoium has positions in Snap Inc. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

  • This field is for validation purposes and should be left unchanged.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Free Share Allocation Reward Levels

STARTER

Class
$ 2,500 Deposit & Trade
  • REWARD^
  • 1 x Marathon Oil Corporation (NYSE:MRO)

ECONOMY

Basic
$ 5,000 Deposit & Trade
  • REWARD^
  • 1 x Pfizer Inc (NASDAQ:PFE)

ECONOMY

Standard
$ 10,000 Deposit & Trade
  • REWARD^
  • 1 x Amazon.com Inc (NASDAQ:AMZN)

ECONOMY

Plus
$ 25,000 Deposit & Trade
  • REWARD^
  • 2 x Apple Inc (NASDAQ:AAPL)
POPULAR

BUSINESS

Class
$ 50,000 Deposit & Trade
  • REWARD^
  • 4 x Apple Inc (NASDAQ:AAPL)

FIRST

Class
$ 150,000 Deposit & Trade
  • REWARD CHOICES^
  • 12 x Apple Inc (NASDAQ:AAPL)
  • 2 x Tesla (NASDAQ:TSLA)
^Please refer to the Free Share Promotion Terms and Conditions for details.

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex Securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

FREE AAPL, TSLA, AMZN, PFE or MRO Share(s)
REGISTER TO BE ELIGIBLE FOR FREE SHARES
TRAVEL ACROSS THE FINANCIAL WORLD
Act Fast - Promotion Ends In
Click Here To Get Started
FREE AAPL, TSLA, AMZN, PFE or MRO Share(s)
REGISTER TO BE ELIGIBLE FOR FREE SHARES
TRAVEL ACROSS THE FINANCIAL WORLD
Act Fast - Promotion Ends In
Click Here For More Info