Shares of Snap (SNAP 1.26%), the parent of Snapchat, were moving lower last month as broader headwinds against growth stocks overshadowed a solid first-quarter earnings report.
As interest rates rise, investors are reassessing valuations for growth stocks like Snap, and consequently many of these stocks have fallen in the past few months. Concerns about inflation and a potential recession also seem to be adding to the headwinds. According to data from S&P Global Market Intelligence, the stock finished last month down 21%.
The stock's decline mostly tracked with the Nasdaq index.
Snap got a boost at the start of the month as Piper Sandler's semiannual survey of teens found that Snapchat continues to have strong market share among teens, essentially tied with TikTok for the most popular social media app.
The following week, the stock began to slide as Tesla CEO Elon Musk revealed a 9% stake in Twitter and later made an agreement to buy the company. Twitter isn't a direct challenger to Snapchat, however, and Musk's takeover of Twitter is unlikely to have an impact on Snap.
On April 20, the stock fell 9% after Netflix reported a surprise decline in subscribers, which some investors believed to be due to the rise of TikTok, which also poses a threat to Snap.
Finally, the stock rebounded modestly when it reported first-quarter earnings. The number of daily average users rose 18% to 332 million, and revenue increased 38% to $1.06 billion, which matched estimates. On the bottom line, it reported a per-share loss of $0.02, which was slightly worse than expectations of a penny-per-share profit. Adjusted EBITDA jumped from a loss of $2 million to a profit of $64 million.
Looking ahead, the company called for revenue growth of 20%-25% in the second quarter and adjusted EBITDA between breakeven and $50 million.
Snap is arguably the most innovative social media stock on the market, with initiatives in augmented reality, and even a new flying selfie drone. The company said that more than 250 million Snapchatters engaged with augmented reality every day on average in the quarter, and the tools are particularly powerful for advertisers like apparel and home furnishings companies that want to showcase their products as they'll be used.
While the company's revenue growth is slowing down, its user base continues to outgrow the industry, and its innovative products should ensure long-term growth.