Snap’s stock (NYSE: SNAP) has gained roughly 30% YTD as compared to the 14% rise in the S&P500 index over the same period. That said, at its current price of $12, it is trading 27% above its fair value of $9 – Trefis’ estimate for Snap’s valuation. The company posted mixed results in the first quarter of 2023, with earnings beating expectations but revenues missing the mark. It reported total revenues of $989 million, which decreased 7% y-o-y due to a drop in advertising spending. It was also evident from a 19% decline in the average revenue-per-user. That said, the daily active users were up 15%. On the cost front, operating expenses increased in the quarter, mainly due to higher cost of revenues and higher sales & marketing expenses. However, improvement in the net interest income and other income partially reduced the negative impact on the bottom line. Overall, the firm posted a net loss of $328.7 million, as compared to the net loss of $359.6 million in the year-ago period.
The top line grew 12% y-o-y to $4.6 billion in FY 2022. It was mainly driven by growth in the North American segment, which generates around 70% of the total sales. Despite growth in revenues, the net loss increased from $488 million to $1.43 billion in the year, because of an unfavorable increase in the operating expenses.
Moving forward, we expect the advertising spending to remain under pressure in Q2 as well. Notably, the consensus estimates for Q2 revenues and earnings are $1.05 billion and -$0.04 respectively. Overall, we forecast Snap’s revenues to remain around $4.53 billion in FY2023. Additionally, SNAP’s revenue per share is likely to decrease to $2.81, which coupled with a P/S multiple of just above 3x will lead to the valuation of $9.
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