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Avoid Snap Stock At All Costs

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Snap (NYSE:SNAP) couldn’t have had a worse year in its business history. SNAP stock crashed after the warning about the business outlook and has dropped more than 40% since then. The stock is down more than 70% in the past six months and I believe the downward streak will continue.

SNAP stock is currently trading at $15.17, which is much below the IPO price of $17. The company did have some of its best days after the onset of the pandemic, but 2022 hasn’t been a good year for it. Here’s why you shouldn’t touch SNAP stock.

SNAP

Snap

$15.17

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The Coming Quarters Will Be Tough

In the first-quarter earnings report, the company had projected a rise in revenue by 20% to 25% year over year for the second quarter, an outlook that looked grim even at the time. It expected the adjusted EBITDA (earnings before interest, taxation, depreciation and amortization) to be between breakeven and $50 million.

However, the company now expects the revenue and adjusted EBITDA to miss the lower end of the guidance. Part of it is due to macroeconomic conditions. In my previous coverage of the stock, I said that SNAP stock would suffer due to the macro conditions, and it certainly did. The stock was trading at $31 then. I was hoping for a rebound. It did reach $39.80 less than a month later, but a downward trend quickly followed.

One might argue that Snap has a solid cash flow and is making money through advertising revenue. However, the company hasn’t been able to grow its ad revenue or the average revenue per user, which is troublesome. If the user base isn’t growing, advertisers won’t be willing to spend money on the platform. Snap has cash to ride out the storm but considering the current macroeconomic situation, it looks tough for the company to bounce back.

The social media company could have a tough second half of the year and the stock wouldn’t go too far.

The Bottom Line On SNAP Stock

All might not be over for Snap, and the long-term story could look interesting, but there will be more difficult quarters ahead. This could mean a lot of suffering for the business and the investors. There are many aspects the company needs to work on if it wants to continue attracting users. The current state of Snap could make it an acquisition target for Meta Platforms (NASDAQ:FB), which had already attempted to buy the company twice in the past.

Several analysts have downgraded the stock after the warning about the business outlook. Thomas Champion, a Piper Sandler analyst has a “neutral” rating with a price target of $18. Further, Brian Nowak, a Morgan Stanley analyst has also lowered the price target to $24 from $55, but has maintained an “overweight” rating on the shares.

Avoid SNAP stock at all costs and choose other resilient tech stocks to invest in. Snap has an open-ended downside risk amidst the rising uncertainties in the market.

On the date of publication, Vandita Jadeja did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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