Snap Stops Some of the Bleeding, and That's What We Want to See
Snap is not yet profitable but lost less money than expected, cash flows are positive, guidance is decent. Let's see how to handle the stock now.
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On Wednesday evening, portfolio holding Snap Inc (SNAP) revealed its fiscal first-quarter financial results that showed an unadjusted loss per share of $0.05 on revenue of $1.529 billion. The top line result met Wall Sreet's expectations while sporting year-over-year growth of 12.5%. But that bottom-line result did actually beat Wall Street by two cents a share. The shares are trading lower ahead of Thursday's opening bell.
“In Q1, we returned to growth in daily active users, accelerated revenue growth, expanded margins, and generated strong free cash flow," said CEO Evan Spiegel in the press release. "We remain focused on disciplined execution as we invest in Specs and our long-term opportunity in intelligent eyewear and look forward to sharing more at AWE on June 16th.”
Global daily active users did grow 5% to 483 million. That said, the company acknowledged that so far, advertising-driven revenue has been slow to follow suit. That is at least part of the reason behind the overnight selloff.
Operations
As revenue generation grew 12.5% to $1.529 billion, the cost of that revenue increased just 4% to $665.241 million. Total costs and operating expenses grew 3% to $1.603 billion, leaving unadjusted operating loss of $74.449 million (from a loss of $193.8 million). After accounting for interest, other income & expenses and taxes, unadjusted net income loss attributable to shareholders improved to -$85.76 million from -$139.587 million. This works out to an unadjusted loss per share of $0.05 per fully diluted share, up from -$0.08 for the year-ago comparison.
Guidance
For the current quarter, SNAP sees revenue of $1.52 billion to $1.55 billion, which takes the midpoint of the range above the $1.53 billion or so that Wall Street had in mind. The company also sees adjusted earnings before interest, taxes, depreciation, and amortization at $175 million to $200 million, while expecting pretax restructuring charges to be "more fully reflected in Q3 and beyond."
Fundamentals
For the period reported, SNAP generated operating cash flow of $326.779 million (+115.6%). Out of that came capital expenditure of $40.772 million, leaving free cash flow of $286.007 million (+150%). The company is obviously in no position to return capital to shareholders.
Turning to the balance sheet, SNAP ended the quarter with a cash position of $2.823 billion and current assets of $4.28 billion. Current liabilities add up to $1.214 billion. This does include short-term debt of $46.988 million. That puts the company's current ratio at a beefy 3.53.
Total assets amount to $7.502 billion. Goodwill and other intangibles comprise $1.848 billion or 24.6% of that total, which is in line with modern norms. Total liabilities less equity comes to $5.417 billion. This includes $3.489 billion in long-term debt, which is a lot, but not out of control. This is not a bad balance sheet.
My Take
Of course I would rather see SNAP be profitable. That said, the company lost less money than expected, cash flows are decisively positive, the guidance is decent and the balance sheet is better than I thought it would be. Corporate execution is clearly improving.
It looks like SNAP may have developed a cup pattern from late January, and on that cup with this selloff, will add a handle. That will move the pivot to the right side of the cup at $6.36. I look for support to show up close to the 21-day exponential moving average. The daily moving average convergence divergence is weakening a bit but has not yet taken on a bearish posture. I am not discouraged by what I see here. My target price for SNAP is currently $7.50.
Upcoming Portfolio Earnings
- Rocket Lab (RKLB) after the closing bell on Thursday, May 7.
- Evolv Technologies (EVLV) after the closing bell on Tuesday, May 12.
- Velo3D ( (VELO)) after the closing bell on Thursday, May 7.
Wednesday's Intentions vs. Wednesday's Actual Trades
- Buy back one OCUL $12 June 19 call at $0.45.
- Bought one OCUL $12 June 19th call at $0.40.
- Sell (write) one OCUL $11 September 18 call at $1.65 or better.
-Sold one OCUL $11 September 18th call at $1.65.
Thursday's Intention
- Buy 100 shares of SNAP at $5.75 or better. This bid is limited to $5.75 and is not a market order.
Current Positions
Long 50 shares of EVLV at $6.0898. Last sale: $7.22.
Long 25 shares of MBLY at $8.92. Last sale: $9.09.
Long 150 shares of OCUL at $8.305. Last sale: $9.73.
Short one OCUL $11 Sep 18th call at $1.65, Last sale: $1.70.
Long 125 shares of ONDS at $9.4749. Last sale: $9.08.
Short one ONDS $13 June 19th call at $0.84. Last sale: $0.25.
Long 10 shares of PL at $37.18. Last sale: $37.67.
Long 12 shares of PLTR at $140.30. Last sale: $137.81.
Long 10 shares of RKLB at $65.173. Last sale: $82.23.
Long 125 shares of SIDU at $2.725. Last sale: $3.19.
Long 100 shares of SNAP at $5.9034. Last sale: $5.95.
Short one SNAP $7 June 19th call at $0.45, Last sale: $0.22.
Long 175 shares of SOFI at $15.9573. Last sale: $16.36.
Short one SOFI August 21st $20 call at $1.02. Last sale: $1.01.
Long 60 shares of VELO at $11.7427. Last sale: $13.13.
Cash: $506.41
Related: Our Plan for This Small-Cap Therapeutic Name After Earnings
Portfolio Value: $10,868.70, +8.7% from inception on March 24th.
