A stock moving more than 50% higher in a single session is normally cause for celebration on Wall Street, but Snap Inc.’s big rally Friday was met with skittishness.
Shares of the Snapchat parent company soared 58.8% in Friday trading after Snap SNAP, +58.82% topped expectations for its latest quarter, delivered a surprise GAAP profit, and offered a more upbeat view than Facebook-parent Meta Platforms Inc. FB, -0.28% of its ability to weather external challenges. Snap’s progress notwithstanding, some analysts expressed concern about the wild recent moves in tech shares this week and wondered whether Snap’s positioning was actually all that different from Meta’s.
Snap’s Friday surge comes after a 24% plunge in Thursday’s session, which was fueled by fears that Meta’s frank outlook on risks from Apple Inc. AAPL, -0.17%, and TikTok signaled trouble for the broader social-media industry. Meta itself lost more than $230 billion in market value Thursday amid a 26% stock slide of its own.
“Is a 25%+ drop in FB post that guide and conf call really a healthy sign for this equities market and tech sector?” asked Jordan Klein, a Mizuho desk-based analyst who’s associated with the firm’s sales team and not its research arm. “I think not. I was around during the dot-com rally and bust and the FB, SNAP, AMZN, PYPL moves this week remind me of that market over 20 yrs. ago.”
The huge stock swings suggest to him that retail investors are panicking while the market experiences a “major unhealthy impact from ETF, quant, CTA, passive style players and funds that do not think” but rather “just execute like a machine,” according to his note to clients.
Bernstein’s Mark Shmulik noted that big stock moves from Snap and Pinterest Inc. PINS, +11.18%, which also reported results Thursday afternoon, mainly just reversed steep declines from recent days and weeks. (Snap’s shares are still down almost 30% on a three-month basis, versus a 4% slide for the S&P 500 SPX, +0.52% over that span.)
He titled his note to clients: “None of this makes sense. But there’s money to be made on this rollercoaster.”
While Shmulik seemed to acknowledge the market’s volatile swings, he was also pleased by Snap’s results. Investors might have thought coming into this earnings season that Snapchat would be the social-media platform most negatively impacted by TikTok’s sharp rise, but unlike Meta, the company didn’t portray TikTok as a major threat, aside from acknowledging that it’s one of several competitors.
Even as the company faces some pandemic-related challenges, Snap still delivered 20% year-over-year growth in users and saw engagement growth in all three of its markets, Shmulik noted.
The analyst has an outperform rating on the stock and boosted his price target to $65 from $60 while calling Snap “the cleanest story” among internet names.
Snap painted a rosier picture than Meta in its latest report, but not all were sold on the drastically different story that Snap’s management conveyed. RBC Capital Markets analyst Brad Erickson downgraded the stock to sector perform from outperform, writing that despite the “dramatic” stock move, he still had questions about how Snap is managing ad-targeting challenges brought on by Apple’s privacy changes.
“Management’s commentary makes it unclear if SNAP has made any actual targeting improvements, in our view,” he wrote.
Erickson also wondered if Snap’s content approach would prove successful amid the rise of TikTok. Snapchat highlighted momentum with its Spotlight section that showcases user-submitted short-form video content, similar to what people can find on TikTok, but Erickson questions whether that will be enough in the current competitive landscape.
“With N. America DAUs [daily active users] missing expectations in Q4 and only modestly growing y/y, we do not believe Spotlight is displaying the potential to drive an inflection to U.S. users – particularly given TikTok’s apparent rising momentum,” he wrote.
Snap’s stock also “lacks valuation support,” he continued. Based on its aftermarket indication of $39, the stock was trading at 8.4 times enterprise value to estimated 2023 revenue, according to Erickson, which he viewed as “not cheap” given that “Street estimates appear ambitious based on the aforementioned headwinds.” (Shares recently changed hands near $37.)
Wells Fargo’s Brian Fitzgerald was more upbeat about Snap’s competitive stance.
“Amid strong competition, management acknowledged a reduction in time spent posting/watching Friend Stories, offset by increased consumption of pro/community content in Discover/Spotlight,” he wrote. But with Snap’s “broad range of utility” through features like augmented-reality lenses, messaging, and commerce, he sees the company as “well positioned to compete for user attention.”
Cahall has a buy rating on the stock but cut his target price to $60 from $75.