Is SNAP Stock a Good Investment After Its Post-Earnings Rally?

Mohit Oberoi, CFA - Author
By

Feb. 8 2022, Updated 5:40 a.m. ET

Snapchat parent Snap saw its biggest single-day stock surge following a surprise profit in the fourth quarter of 2021. Is the social media company a good investment? What can investors expect from SNAP stock in 2022?

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Social media stocks have had a dismal run recently. At $37.88, SNAP stock has fallen 40.5 percent over the last year, underperforming the S&P 500. Meanwhile, Twitter and Facebook parent Meta Platforms stocks have dropped 36.5 and 16.5 percent, respectively, and Pinterest has lost two-thirds of its market cap.

Social media companies' earnings

Social media companies have seen mixed fortunes this earnings season. Facebook saw its worst fall in history after its Q4 2021 earnings announcement. Its market cap eroded by $230 billion after investors were disappointed with its first-quarter 2022 outlook. SNAP, along with other social media stocks, also plummeted following Meta Platforms' earnings release.

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is snap stock a good investment
Source: SNAP

Snap’s Q4 2021 earnings

Snap reported its Q4 2021 earnings on Feb. 4. Almost all of its metrics beat analysts' estimates: It reported revenue of $1.3 billion, whereas analysts had forecast $1.2 billion, and its adjusted EPS of $0.22 almost doubled analysts' projection of $0.10. The company's net income was also positive for the first time since it went public in 2017.

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Snap's operating metrics were also encouraging in the quarter. Its global daily active user count was 319 million at the end of 2021, which was ahead of the 316.9 million that analysts were expecting. Its average revenue per user was $4.06, which was also higher than analysts' $3.79 forecast.

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Snap’s stock price forecast

Although analysts have slashed their target prices for SNAP, they still foresee a massive upside. According to TipRanks, analysts' average target price for SNAP is $55.20, 45.7 percent above its current price. Of the 27 analysts tracking SNAP, 18 recommend "buy" and nine recommend "hold."

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Wall Street analysts are divided on SNAP after its massive post-earnings rally. Whereas MKM Partners, Jefferies, and Canaccord Genuity raised their target prices, Evercore ISI, Oppenheimer, and Rosenblatt Securities lowered theirs. Bank of America upgraded the stock from a "neutral" to "buy," but RBC downgraded it from "outperform" to "market perform."

valuations of social media companies
Source: TIKR

Snap's valuation metrics compared with those of other social media companies.

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Snap’s valuation metrics

Snap looks expensive compared with other social media companies, with a NTM (next-12-month) EV-to-sales multiple is 10.7x. In comparison, Twitter, Pinterest, and Meta Platforms have NTM EV-to-sales multiples of 4.98x, 5.55x, and 4.62x, respectively.

Meta Platforms could be a better investment

Meta Platforms looks like a better social media bet right now. The company is facing short-term headwinds amid regulatory troubles, its cash burn in the metaverse business, and Apple iPhone privacy rules. However, the company's strong presence in the social media industry and pivot toward the metaverse make it a good long-term investment.

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