Snap Stock Forecast & Analysis: Is SNAP a Buy?

Written by Sean GraytokUpdated: 8th May 2022
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This Snap stock forecast examines the investment potential of SNAP. Let’s find out if it’s a buy.

Snapchat Stock Forecast: Background

Snap is a messaging app that lets users exchange pictures and videos that are designed to disappear after they’re viewed.

It was founded by Evan Spiegel and Bobby Murphy in 2011 upon the relaunch of Picaboo as Snapchat.

While many classify it as another social media platform, Snap markets itself as a “camera company.”

Snap Stock Forecast: Investment Potential

#1. Daily Active User Growth on Android Phones

Snap had more than 319 million daily active users (DAUs) on its platform in the recent quarter, representing yet another strong year-over-year increase.

Snap’s Android user base is now larger than its iOS base.

CEO David Spiegel called this inversion a “critical milestone that reflects the long-term value of the investment we made to rebuild our Android platform.”

In 2017, Spiegel blamed slowing user growth on its app’s poor performance on low-cost Android phones.

Snap changed the way it designed its products and even shifted half of its design team to fix this issue — quality display and connection speeds were crucial for an image and video-centric app to work.

Four years later, the user base flipping has validated Snap’s efforts.

#2. Social Commerce

Apple’s latest iOS 14.5 update allows users to opt-out of being tracked by applications. This makes it more difficult for platforms like Instagram and Snap to deliver targeted ads, which results in lower conversion rates and less revenue.

Snap is following Facebook’s lead (this time) and attempting to bring more commerce onto its platform to hedge against its falling ad revenue.

Here are Snap’s recent partnerships:

  • Fitness company Sweat to track body movement while exercising to recommend optimal form to Snapchat users
  • Gucci to launch the first sponsored LiDAR Lens to project a 3D camping site around the user to promote the Gucci and North Face collaboration
  • American Eagle to launch a sponsored Lens which displays different types of American Eagle jeans in AR with specific fits, washes, and the option to click to purchase
  • Newspaper publisher Gannet to promote advertising solutions to more than 100,000 small business advertisers in the U.S. and Canada
  • Acquired sizing technology company Fit Analytics to power solutions for retailers and brands

Additionally, Snap partnered with Samsung to feature its popular Snapchat Lenses in Samsung’s native camera application on select new smartphones.

Snap is aggressively diversifying its monetization streams beyond users accidentally clicking ads when using its app.

#3. Augmented Reality

Chris Dixon of a16z famously said, “The next big thing will start out looking like a toy.” We believe Snapchat fits this framework due to its long-term potential with augmented reality (AR).

In 2011, many questioned Snapchat’s initial use case: a messaging app that deletes received images ten seconds after opening? Hmm.

Today, few companies are better positioned to deliver next-gen AR into the hands of millions than Snap

Snap’s AR currently allows users to try on watches and jeans. Zooming in on Snapchat’s innovation with AR, this represents the later stages of its “toy” phase beyond the Dog filter.

We believe the final level of this AR game looks something like a Black Mirror episode with social scores and networks projecting above people in the physical world.

We don’t advise Snap-curious investors to stake their conviction on this distant eventuality — the degree to which Snapchat leads or benefits from this innovation is still largely unknown.

The takeaway here is that Snapchat’s AR tech is progressing along the spectrum from “toy” to (potentially) “the next big thing”.

Snap Stock Forecast: Moat

A company’s moat is typically some combination of its bull cases where the sum of its parts is greater than the whole.

Ideally, these components make a company’s offering difficult to replicate, securing its market share and profitability.

The following attempts to capture Snap’s differentiator:

Network Effects + Unique Advertising Opportunities

Snap benefits from network effects like other social platforms, such as Instagram, Twitter (TWTR), PayPal (PYPL), and Square (SQ).

Snap’s value depends on the number of users who leverage its offering — you use Snapchat because other people use Snapchat.

While there are many social networking platforms, each satisfies the end-users unique demand and is “hyper niched” to dominate a winner-take-most market.

For Snap, it’s the instantaneous image and video sharing. Established network effects in these respective markets make it difficult for disrupters to replace incumbents.

Snap’s product offering creates some unique advertising opportunities that the company is just beginning to explore.

Snap’s AR and Lenses can create a more intense advertising model that will add value to the advertiser and consumer alike.

Snap Stock Forecast & Analysis: Q4 Earnings

Snap reported Q4 earnings on February 3, 2022. Let’s see why the stock surged after the call:

  • EPS: 22 cents vs 10 cents estimated
  • Revenue: $1.3 billion vs $1.2 billion estimated 
  • Global Daily Active Users (DAUs): 319 million vs 316.9 million
  • Average Revenue per User: $4.06 vs $3.79  

Snap expects daily active user growth between 328 and 330 million in the coming quarter, which beat analyst estimates of 327.8 million. 

SNAP shares ripped more than 58% after earnings. 

This came a day after Meta’s forgettable earnings report, where shares fell 24% after the release. 

Snap’s CFO also gave an update on how Apple’s changes to iOS are affecting the company’s bottom line.

He said that Snap’s direct response advertising business experienced a recovery from the iOS changes “quicker than we anticipated.” 

Snap Stock Competition

Snap and Facebook have been going at it for years, but there are plenty of other challengers. Here are Snap’s top competitors:

  • Facebook / Instagram (FB)
  • Google / YouTube / WhatsApp (GOOG)
  • TikTok
  • Twitter (TWTR)
  • Pinterest (PINS)
  • Netflix (NFLX)
  • Apple / iMessage / FaceTime (AAPL)
  • Microsoft / LinkedIn (MSFT)

Generally speaking, Snap competes with companies that monetize a user’s attention span.

While Facebook and Google are pioneering the AR frontier, Snap might have the most organic use-case for this specific technology.

Snap Stock Forecast: Risks

#1. New Project Risks

Snap bulls and bears disagree on the company’s new offerings. The bulls applaud Snap’s efforts to diversify revenue while the bears question them.

Snap is swinging at a lot more pitches — literally. The company is creating its own content and trying to sign influencers to exclusive deals.

These are new projects. It will be interesting to see Wall Street’s reaction to the success or failures of these endeavors.

In a perfect world for Snapchat shareholders, the company delivers content that is all the good of TikTok without the bad of Quibi.

#2. What is Snap?

The fact that Snap calls itself a “camera company” and not a social platform is also interesting.

This reveals the company’s long-term ambitions, which do not yet appear to be priced into the stock.

As Snap matures, Wall Street might pressure the company to deliver on these grandiose plans or double down on its strengths.

Snap Stock Allocation in Your Portfolio

Snap stock might not be for every investor — each person has their own risk profile and investing goals that may or not mix with SNAP.

Consider the following questions when determining your allocation to SNAP, if any:

  • Can Snapchat capitalize on its new advertising partnerships and opportunities?
  • Can Snapchat improve its “Discover” page UI to optimize monetization?
  • Can SNAP appreciate long-term without converting on its AR initiatives?
  • Will Apple’s privacy changes to iOS 14.5 be detrimental to Snapchat’s advertising business?
  • Are Snapchat’s network effects strong enough to retain its users long-term?
  • Is Snapchat’s international growth sustainable?

Snapchat Stock Forecast: FAQs

Is SNAP a buy or sell?

Snap (SNAP) is a buy or sell, depending on a variety of factors. Some believe that Apple’s privacy changes will be detrimental to Snapchat’s advertising business. Others are excited about Snap’s long-term potential with augmented reality.

Why is Snapchat stock going down?

Stocks go up and down for countless reasons. Snap stock might be going down due to rising interest rates that trim the valuations of high-flying tech stocks like SNAP.

What is the highest Snapchat stock has ever been?

The highest Snapchat stock price recorded was around $83 per share, which occurred in February 2021.

Bottom Line: Snap Stock Forecast

Snap is innovating around the changing advertising landscape — time will tell if its new initiatives will add shareholder value.

This article is for informational purposes only, and it is not intended to be investment advice. Read our editorial guidelines and public equities research methodology to learn more about how we researched Snap (SNAP) stock.

Sean Graytok
Sean Graytok

Sean Graytok is our Co-Founder and leading expert in investing and financial management. His work has been cited in leading industry publications, such as InvestorPlace and Business Insider. Sean is interested in the people and technologies that are improving the world.