Snap Stock is Up More than 200% in 2020, is it Still a Buy?

Snap, Inc. (SNAP), a camera applications and social media company, has far exceeded even the most bullish expectations, soaring more than 200% year-to-date. The company has this year benefited from a big jump in its daily active users and rapid growth in demand from brand advertising partners. The question now, of course, is does the stock have more upside?

Snap, Inc. (SNAP) is a leading camera applications and social media company, widely known for its technological tools and services like Snapchat, Spectacles, and Bitmoji. In addition, the company offers Snap Map, which provides live maps of individual locations, showing nearby friends and popular Stories. Every user of Snapchat has a “Story” to which they can post image and video Snaps. Anyone on their “Friends” list can see their Story,

The idea of social media evolving into entertainment platforms is nothing new. But the COVID-19 outbreak has shifted the focus away from users passively consuming content to their actively creating it. Creating and uploading videos on platforms like SNAP is another example of online behavior that has been accelerated by the pandemic. We think SNAP should continue to see increased engagement in the coming months because the total daily time spent by Snapchatters on its distinct platforms is on the rise.

SNAP’s strengthened ad platform and its growing user-base have helped the stock gain 216.3% year-to-date. This impressive performance, combined with several other factors, has helped SNAP earn a “Strong Buy” rating in our proprietary rating system.

Here is how our proprietary POWR Ratings system evaluates SNAP:

Trade Grade: A

SNAP is now trading above its 50-day and 200-day moving averages of $40.79 and $24.83, respectively. This indicates that the stock is in an uptrend. Also, the stock has gained 107.8% over the past three months, reflecting solid short-term bullishness.

SNAP’s revenue has increased 52% year-over-year to $679 million in the third quarter ended September 30, 2020. The increase in revenue was attributable primarily to the company’s significant increase in daily active users. Its Adjusted EBITDA has risen 233% from its year-ago value to $56.36 million, while cash, cash equivalents, and restricted cash flow have increased 12.9% from the prior-year quarter to $824.99 million over this period.

On November 23, SNAP announced the launch of Spotlight, a new entertainment platform for user-generated content within Snapchat. This should enable the company to substantially increase its monthly active users.

The company also recently   launched ‘Meet the Snapchat Generation,’ its first global business-to-business marketing campaign that highlights Snapchat’s unique audience. SNAP has also introduced Platform Burst, which allows advertisers to purchase ad inventory across different formats to reach a significant portion of their target audience over a few days.

Buy & Hold Grade: A

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers, SNAP is well positioned. The stock is currently trading just 2.7% below its 52-week high of $54.71, which it hit on December 17.

The company’s net revenue grew at a CAGR of 45.2% over the past three years. This can be attributed to its continued investments in innovative platforms to better serve its large and engaged community.

Peer Grade: A

SNAP is currently ranked #5of 61 stocks in the Internet industry. Other popular stocks in this industry are Alphabet Inc. (GOOG), Twitter, Inc. (TWTR) and Carvana Co. (CVNA)

GOOG, TWTR, and CVNA have gained 31.9%, 68.6%, and 183.5% year-to-date, respectively. This compares to SNAP’s 216.3% returns over this period.

Industry Rank: A

The Internet industry is ranked #19 of the 123 industries. The companies in this industry are involved in numerous online businesses, including camera applications, content, auction exchanges, e-commerce sales, and advertising sales.

With large communities forced to stay at home and spend more time on their smartphones amid the continuing coronavirus contagion, activities on camera applications and messaging apps are on the rise. Also, as work, schools and universities across the country are operating remotely, people are relying heavily on digital platforms, which is driving the demand in this industry.

Overall POWR Rating: A (Strong Buy)

SNAP is rated “Strong Buy” due to its impressive financials, short-and-long-term bullishness, solid price momentum, and underlying industry strength, as determined by the four components of our overall POWR Rating.

Bottom Line

SNAP is well positioned to soar in the upcoming months despite gaining 216.3% year-to-date. With many countries experiencing a second wave of COVID-19 infections, the demand for digital platforms that facilitate human interaction will continue to grow given that people of all ages are now glued to their smartphones. Hence, SNAP should keep gaining for the foreseeable future we believe.

The consensus EPS estimate of $0.07 for the current quarter ending December 31, 2020 indicates a 133.3% improvement year-over-year. Moreover, SNAP has an impressive earnings surprise history, with the company beating consensus EPS estimates in three of the trailing four quarters. The consensus revenue estimate of $848.13 million for the current quarter indicates a 51.2% increase from the same period last year.

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SNAP shares were trading at $53.32 per share on Friday morning, up $0.07 (+0.13%). Year-to-date, SNAP has gained 226.52%, versus a 16.37% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.


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