Snap Inc. (SNAP) is a camera company operating in North America, Europe, and internationally. The company offers Snapchat, a camera application with various functionalities, such as Camera, Communication, Snap Map, Stories, and Spotlight.

The company is looking to boost its user counts by 30% by the end of 2023 and increase revenue to $6 billion. The management’s optimism boosted the stock. “Personally, where I sit today and look at the long-term opportunity in our business, I really believe it’s enormous,” Chief Executive Evan Spiegel said.

However, the stock has lost 75% year-to-date and 83.5% over the past year. Over the past month, SNAP has gained marginally to close the last trading session at $11.40.

Here is what could shape SNAP’s performance in the near term:

Weak Bottom-line Performance

For the second quarter ended June 30, 2022, SNAP’s revenue came in at $1.11 billion, up 13.1% year-over-year. However, its net loss came in at $422.07 million, up 178.3% year-over-year, while its non-GAAP loss per share came in at $0.02, compared to an EPS of $0.10 in the previous period.

Moreover, its adjusted EBITDA came in at $7.19 million, down 93.9% year-over-year.

Stretched Valuations

In terms of its forward EV/S, SNAP’s 4.36x is 115.3% higher than the industry average of 2.02x. Its forward P/S of 4.19x is 241.6% higher than the industry average of 1.23x. In addition, its forward EV/EBITDA of 68.23x is 728.5% higher than the industry average of 8.24x.

Poor Profit Margins

SNAP’s trailing-12-month negative EBITDA margin of 15.28% is lower than the industry average of 19.57%. Furthermore, its trailing-12-month net income margin of negative 18.31% is substantially lower than the industry average of 5.80%.

Moreover, SNAP’s trailing-12-month ROE, ROTC, and ROTA of negative 26.17%, 8.16%, and 9.45%, compare with the industry averages of 6.66%, 3.66%, and 2.48%, respectively.

POWR Ratings Reflect Bleak Prospects

SNAP has an overall F rating, equating to a Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

SNAP has a D grade for Quality, consistent with its lower-than-industry profit margins. In addition, it has a D grade for Growth, in sync with its weak bottom-line performance in the latest reported quarter.

In the 64-stock Internet industry, SNAP is ranked #58. The industry is rated F.

Click here for the additional POWR Ratings for SNAP (Value, Momentum, Stability, and Sentiment). View all the top stocks in the Internet industry here.

Bottom Line

Although the company expects promising growth in the coming years, Wall Street analysts expect SNAP’s EPS to decrease 17.4% per annum over the next five years. Moreover, its EPS is expected to decline 54.5% year-over-year for the quarter ending December 2022. Also, considering SNAP’s weak profit margins, I think SNAP might be best avoided now.

How Does Snap Inc. (SNAP) Stack Up Against Its Peers?

While SNAP has an overall POWR Rating of F, one might consider looking at its industry peers, trivago N.V. (TRVG), Expedia Group, Inc. (EXPE), and Tripadvisor, Inc. (TRIP), which have an overall B (Buy) rating.

SNAP shares were trading at $11.48 per share on Wednesday afternoon, down $0.29 (-2.46%). Year-to-date, SNAP has declined -75.59%, versus a -16.24% rise in the benchmark S&P 500 index during the same period.

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

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