Snap’s Q3 Success Drives Stock Surge: What It Means for Investors

Snap’s stock (NYSE: SNAP) climbed over 10% in after-market trading on Tuesday, October 29, following strong results for the third quarter. The company reported revenue of $1.37 billion, with adjusted earnings of eight cents per share, outperforming the expected $1.36 billion in revenue and six cents in earnings. Here, we explore key insights from Snap’s earnings, valuation, and recent stock performance.

Snap’s Q3 Performance Breakdown

Snap’s revenue for Q3 stood at $1.37 billion, marking a 15% year-over-year increase, primarily driven by significant growth in paid subscriptions. The Snapchat+ member count surged to 12 million, over doubling compared to the previous year. Daily active users (DAU) reached 443 million, a 9% rise, while average revenue per user (ARPU) climbed to $3.10, reflecting a 6% increase from last year. Importantly, both DAU and ARPU figures surpassed analysts’ predictions. Additionally, Snap’s adjusted EBITDA margin improved by 700 basis points year-over-year to 10% in Q3’24. This growth in revenue and enhanced margins led to adjusted earnings of $0.08 per share, a significant rise from $0.02 a year ago.

Looking ahead, Snap anticipates Q4 revenue to fall between $1.51 billion and $1.56 billion, with adjusted profits estimated between $210 million and $260 million. The midpoint of this profit projection is above what analysts have forecasted for the quarter. To bolster shareholder confidence, the company also unveiled a $500 million share buyback plan.

Implications of These Results on SNAP Stock

Given the promising quarter, favorable profit outlook, and new share buyback initiative, Snap appears to have ticked most of the boxes to please investors. This has resulted in a notable rise in stock price during after-hours trading.

In our assessment, Snap’s valuation stands at approximately $13, close to its current trading level of $12. This estimate is derived from a price-to-sales ratio of 4x based on trailing revenues, consistent with the company’s average over the last four quarters.

Despite Snap’s recent success, its stock has lagged behind broader market performance. The stock has dropped 29% this year, while the S&P 500 index has increased by 22%. Analyzing the past three years, SNAP’s stock performance has shown considerable volatility with annual returns fluctuating significantly; it was -6% in 2021, -81% in 2022, and then bouncing back with a 89% increase in 2023. In comparison, the Trefis High-Quality (HQ) Portfolio, comprising 30 carefully selected stocks, has provided steadier returns and consistently outperformed the S&P 500 throughout this period. This strength can be attributed to the HQ Portfolio’s strategy, which aims for better returns with less volatility.

While SNAP stock presents an appropriate valuation at this stage, it is prudent to evaluate how Snapchat’s peers are performing against essential financial metrics. For more insights and comparisons across different industries, please visit our Peer Comparisons page.

[1] Returns as of 10/30/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.