Snap stock has plunged to a record low: is it a bargain or a value trap?

Snap stock price has crashed to an all-time low as concerns about its business continued. It dropped to a low of $4.36, down from its all-time high of $83, with its market capitalization falling from over $125 billion in 2021 to $7.3 billion.

Snap’s growth in North America has stalled 

Snap, the parent company of Snapchat, the popular social media company, is facing major challenges as growth in its biggest market stalls.

The most recent results showed that its daily active users rose to 474 million in the fourth quarter from 443 million in the same period last year.

However, most of this growth came from its international markets, which normally bring in less money per customer. Its North America active users dropped to 94 million from 100 million in the same period.

Its European users also dropped to 98 million dollars from 99 million. On the positive side, the rest of world grew to 283 million from 254 million a year earlier. 

The challenge, however, is that its North American business brings in most money, with its average revenue per user growing to $3.62. In contrast, the ARPU in the rest of the world is just $1.24.

The same is happening in Europe, where its ARPU stands at $3.47. As such, it can be argued that Snap is growing in the wrong places.

Sadly, the company has limited options to grow its business because of the rising competition from Meta Platforms’s brands like Instagram and Facebook. It is also facing substantial competition from companies like TikTok, which has continued growing market share in the social media industry.

The most recent results showed that Snap’s revenue jumped to $1.76 billion in the fourth quarter, up by 10% from the $1.55 billion in the same period last year. Its North American business brought in $1.02 billion in revenue, while its European and Rest of World business made $341 million and $350 million, respectively.

For the year, the company made over $5.93 billion in revenue, while the operating margin rose slightly to 55%. It also made a net loss of $460 million from $698 million a year earlier.

Snap’s growth is expected to continue slowing in the coming years despite the rising demand for online advertising. The average estimate is that its annual revenue this year will grow by 13% to $6.7 billion, followed by 9.4% to $7.34 billion.

This slowdown means that, while the company is highly undervalued, its slowing growth will make it hard to attract investors. Instead, the company may become a good acquisition target by private equity companies, thanks to its forward PE ratio of 9. It has a total debt of $4.14 billion and $2.9 billion in cash.

Snap stock price technical analysis 

Snap stock chart | Source: TradingView 

The weekly chart shows that the Snap share price has declined to a record low. It recently dropped below the important support level at $6.98, its lowest swing in October 22 and April and August last year. Moving below that level confirmed the bearish outlook.

The stock has dropped below the 50-week Exponential Moving Average (EMA). It also dropped below the key psychological level at $5, confirming the bearish outlook.

Therefore, the stock will likely continue falling in the coming weeks, potentially to the key support level at $3.5.