Shares of social-media and camera firm Snap (SNAP) have been a tough hold over the past six months, now down more than 67% year-to-date. At around $15 per share, the troubled firm is starting to get some love from Wall Street analysts, with the latest upgrade courtesy of Andrew Boone of JMP Securities.
Though competition in the social space has been fierce of late, with video-based social platform TikTok causing most of the pressure, recent U.S. regulators seeking to remove the app from app stores could push users back to other social media firms like Snapchat. Undoubtedly, Snap shareholders would applaud a ban on TikTok, which would essentially knock out Snap’s biggest rival.
While Snap investors shouldn’t speculate on what the fate of TikTok will be, I do think the potential elimination of a top competitor is a major plus. In the meantime, Snap is taking matters into its own hands to improve upon its margins amid harsh times.
With a subscription-based Snapchat+ service that offers a few features for frequent users, the company has an opportunity to take share, not only from fellow social firms but from other engaging entertainment platforms.
On TipRanks, SNAP scores a 1 out of 10 on the Smart Score spectrum. This indicates a high-potential for the stock to underperform the broader market.
Low-Cost Snapchat+ a Plus as Consumers Shift Spending Habits
There’s likely to be a rate-induced recession coming. With that, consumers will tighten their purse strings. As layoffs and rescinded job offers continue in the tech scene, we could witness consumers having more free time and less money to spend. That would likely cause a move from pricier forms of entertainment to cheaper alternatives.
Indeed, Netflix (NFLX) has been under considerable pressure amid weak subscriber numbers over its past two quarters. As economic pains mount, more consumers may ditch their Netflix subscriptions and spend more time on free social-media apps.
Snapchat+ goes for just $3.99 per month, with most of the enticing features being cosmetic. Unfortunately, Snapchat+ does not disable ads. For many Snapchat users, that could be a deal-breaker. In any case, the low-cost subscription, which also allows users to pin a “BFF,” may be stickier with younger consumers than many think.
While I wouldn’t get my hopes up over Snapchat+, I do think there’s nothing for the firm to lose with the introduction of the subscription.
More Disappointment Ahead Despite Low Expectations
Management already had the opportunity to warn of a weak second quarter on the Ukraine-Russia crisis and other economic headwinds. Growth for the second quarter is expected to fall within the 20-25% range, with earnings that could fall flat.
Indeed, the ad business is bound to take a hit in the face of a consumer recession. Still, as previously noted, Snap may be able to enjoy an uptick in users that have more time to spend on free forms of entertainment. Snapchat continues to engage users, and I think it has a chance to take share from the likes of Meta Platforms (META) and TikTok, both of which have been viewed in a negative light as of late.
At writing, Snap stock trades at just 5.3 times sales. That’s not at all expensive for one of the most intriguing social stocks out there. Wall Street analysts have been lowering price targets on the name of late, but the consensus is still pretty upbeat.
Wall Street’s Take
According to TipRanks’ analyst rating consensus, SNAP stock comes in as a Moderate Buy. Out of 32 analyst ratings, there are 24 Buy recommendations, six Hold recommendations, and two Sell recommendations.
The average Snap price target is $27.80, implying an upside of 85.83%. Analyst price targets range from a low of $14 per share to a high of $59 per share.
The Bottom Line on Snap Stock
Snap stock has fallen too fast, too hard. Tough times may be ahead, but one has to think that most such headwinds are baked in. As Snap continues to innovate, with new features and functionality, the firm could begin to outpace its rivals. Undoubtedly, a TikTok removal from app stores in the U.S. could induce a significant rally in Snap.
Further, Snapchat Spotlight, the firm’s answer to TikTok (or Reels), could help Snap even the playing field. And let’s not forget about the firm’s hardware and augmented reality innovations that could translate well once the metaverse arrives.
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