What happened
Shares of Snap (SNAP 2.89%) were a winner last month after the social media company smashed expectations in its fourth-quarter earnings report. The market had expected weak results from the Snapchat parent, following Meta Platforms' disappointing results the day before, but Snap did just the opposite. It ended up with a 23% gain in February, according to data from S&P Global Market Intelligence, even as most tech stocks fell.
As you can see from the chart below, the stock fell sharply on Feb. 3 after the Facebook owner reported earnings, but then surged the following day on its own Q4 update.
So what
Snap fell 24% on Feb. 3 as social media stocks plunged broadly in the wake of Meta's disastrous Q4 report. However, the stock swung back even harder the next day, jumping 59% as its own results showed it was faring much better than the Facebook parent.
Image source: Getty Images.
Revenue in the quarter rose 42% to $1.3 billion, ahead of estimates at $1.2 billion. Snap also delivered strong growth in its user base, which increased 20% to 319 million.
Profitability continued to improve with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) jumping 97% to $327 million; on the bottom line, adjusted earnings per share jumped from $0.09 to $0.22, which was well ahead of the consensus at $0.10.
The results show that Snap isn't experiencing the same headwinds from Apple's ad-targeting changes that Facebook is, and it's continuing to grow its users briskly even as Facebook is stalling out. Much like other social media companies, Snap is also seeing its profit margins widening, showing the appeal of the digital-advertising business model.
Now what
Looking ahead, Snap called for revenue of $1.03 billion to $1.08 billion in the first quarter as it rolls off of its seasonally strongest time of year. That represents growth of 37% at the midpoint, with revenue ahead of the analyst consensus at $1.02 billion. It also sees break-even adjusted EBITDA.
Though Snap gets lumped in with other social media stocks like Meta, the company has taken a unique approach with its focus on using the camera for innovations like lenses and other augmented reality applications, which sets the company up well to perform in the metaverse. Snap is also more focused on communications between friends rather than posting, which arguably makes the platform stickier.
Digital-advertising spending could be impacted by an inflationary environment and rising interest rates, but Snap looks like a good buy at the current price.
