There’s been a major selloff in Snap Inc. (NYSE:SNAP) shares in the week since it released its quarterly report, with the stock down 22% to US$7.76. Sales hit US$1.1b in line with forecasts, although the company reported a statutory loss per share of US$0.22 that was somewhat smaller than the analysts expected. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. We’ve gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.
Check out our latest analysis for Snap
Taking into account the latest results, the most recent consensus for Snap from 38 analysts is for revenues of US$5.40b in 2023 which, if met, would be a meaningful 17% increase on its sales over the past 12 months. Losses are predicted to fall substantially, shrinking 39% to US$0.43. Before this latest report, the consensus had been expecting revenues of US$5.42b and US$0.49 per share in losses. Although the revenue estimates have not really changed Snap’sfuture looks a little different to the past, with a notable improvement in the loss per share forecasts in particular.
Even with the lower forecast losses, the analysts lowered their valuations, with the average price target falling 21% to US$11.86. It looks likethe analysts have become less optimistic about the overall business. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company’s valuation. There are some variant perceptions on Snap, with the most bullish analyst valuing it at US$27.00 and the most bearish at US$10.00 per share. We would probably assign less value to the analyst forecasts in this situation, because such a wide range of estimates could imply that the future of this business is difficult to value accurately. With this in mind, we wouldn’t rely too heavily the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.
Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. It’s pretty clear that there is an expectation that Snap’s revenue growth will slow down substantially, with revenues to the end of 2023 expected to display 14% growth on an annualised basis. This is compared to a historical growth rate of 37% over the past five years. Juxtapose this against the other companies in the industry with analyst coverage, which are forecast to grow their revenues (in aggregate) 11% annually. Factoring in the forecast slowdown in growth, it looks like Snap is forecast to grow at about the same rate as the wider industry.
The Bottom Line
The most important thing to take away is that the analysts reconfirmed their loss per share estimates for next year. They also reconfirmed their revenue estimates, with the company predicted to grow at about the same rate as the wider industry. Furthermore, the analysts also cut their price targets, suggesting that the latest news has led to greater pessimism about the intrinsic value of the business.
With that in mind, we wouldn’t be too quick to come to a conclusion on Snap. Long-term earnings power is much more important than next year’s profits. At Simply Wall St, we have a full range of analyst estimates for Snap going out to 2024, and you can see them free on our platform here..
And what about risks? Every company has them, and we’ve spotted 2 warning signs for Snap you should know about.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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