- Snap stock has soared by double-digits after better-than-expected first-quarter earnings results.
- The company performed well during the coronavirus crisis as mass quarantines boosted demand for mobile entertainment.
- Can the social media company hold off rivals like Tik Tok and Facebook?
Snap (NYSE: SNAP) investors are laughing all the way to the bank as better-than-expected first-quarter earnings send the stock flying by over 20% in after-hours trading on Tuesday. The long-suffering social media company now boasts a market cap of over $20 billion as user growth continues to surge.
But is all the optimism justified? Snap has a very high top-line valuation coupled with low-profit margins. The company also lacks a competitive moat and faces significant competition from rivals like Tik Tok and Facebook which offer similar platforms. Over time, the stock will probably give back most of its gains.
Snap Has Been a Disappointing IPO
Snap has disappointed investors since its much-anticipated IPO in March 2017. The stock started trading at $17 per share before reaching an all-time high of $29.44 before falling below its original listing price to end up at $12.44 at the close of trading on Tuesday.
Snap’s problem has always been its extremely large market cap. The company IPOed at a valuation of over $20 billion which priced in a tremendous amount of growth that has been difficult to fulfill. Now, with Snap’s better-than-expect first-quarter results, the market is getting more optimistic about the company’s ability to meet its potential.
A Slam Dunk First Quarter
Snap generated revenue of $462.5 million which is a 44% year-over-year increase from the prior-year period. Most impressively, the company managed to increase its daily active users by 20% to hit 229 million. Management also claims that over 4 billion snaps were created every day in the first…