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Why Snap Stock Lost 6% in 2021

By Jeremy Bowman – Jan 7, 2022 at 6:26AM

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Weak guidance for the fourth quarter ultimately sank the fast-growing tech stock.

What happened

Shares of Snap (SNAP 1.49%) had an up-and-down year in 2021. The fast-growing social media stock posted strong growth for most of 2021 but then disappointed the market at the end with weak guidance for the key fourth quarter.

According to data from S&P Global Market Intelligence, the stock finished the year down 6%. You can see from the chart below that the stock had outperformed the S&P 500 for most of the year, before diving late in 2021.

^SPX Chart

^SPX data by YCharts.

So what

Snap's results for the year were primarily driven by two big swings following its second-quarter and third-quarter earnings reports. 

The stock jumped 24% on July 23 after the company, best known for its disappearing messages, said that revenue more than doubled in its second quarter as it lapped weakness from the lockdown period. Sales rose 116% in the period to $982.1 million, smashing estimates at $845 million.

A person looking at their phone while walking down the street.

Image source: Getty Images.

The company reported a 23% increase in daily active users to 293 million, outpacing its peers, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) more than tripled to $117 million. On the bottom line, the company reported adjusted earnings per share of $0.10, up from a loss of $0.09 in the quarter a year ago and better than estimates of a loss of a $0.01. Overall, the quarter showed strong engagement during the reopening, and the company's executing on its promise from an earlier Investor Day conference to deliver at least 50% revenue growth for the next three years.

Those gains turned out to be short-lived, however, as the stock crashed following its third-quarter earnings report in October. It fell 27% after Q3 numbers came up short and Q4 guidance was particularly weak. Daily-active-user growth jumped by 23% to 306 million, and revenue was up 57% to $1.07 billion, but that was short of expectations at $1.1 billion.

For the fourth quarter, the company guided to $1.17 billion-$1.21 billion in revenue, representing a significant slowdown in growth at just over 30% and well short of the consensus of $1.36 billion. The company cited headwinds from Apple's ad-targeting changes, as well as global supply-chain issues and labor shortages -- which have impacted ad demand -- to explain the weak guidance. The stock then continued to drift lower during the rest of the year as investors backed away from high-priced growth stocks.

Now what

As a result of the recent sell-off, Snap is cheaper than it's been in several quarters, trading at a price-to-sales ratio of about 17. While the stock could still fall from here, that seems like an attractive price for a social media stock experiencing the kind of user growth that Snap is seeing. 

Jeremy Bowman owns Snap Inc. The Motley Fool owns and recommends Apple. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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