Social media company Snap (SNAP), creator of the Snapchat app, is breaking new ground in the field of augmented reality and is in a good position to cash in as the metaverse develops. Is Snap stock a buy?
Technology leadership in augmented reality is why Snap was selected as one of the best metaverse stock plays by Jefferies analyst Brent Thill. However, Snap stock was hit hard after Cowen analyst John Blackledge downgraded the company based on lingering concerns over changes Apple (AAPL) made to its operating system last year.
Technologists describe the metaverse as the next-generation version of the internet. It’s a shared, 3D virtual environment. People can meet in a virtual world to engage in work activities, play games or to simply visit with friends, among other things.
Key pieces of equipment for the metaverse include augmented reality smart glasses. It’s where Snap has a leadership roles and why Thill sees Snap as a top metaverse stock play. Thill has a buy rating on Snap and price target of 65. One week after Thill’s report, however, Blackledge slashed his price target on Snap to 45, from 75. He also downgraded Snap stock to market perform, from outperform, over concerns of a slowdown in advertising, which accounts for the bulk of company revenue.
Continuous Innovation At Snap
Snap has a line of augmented reality smart glasses, called Spectacles. The technology overlays digital images and other information into a person’s field of view. For example, applications for augmented reality technology include navigation, education, games, commerce and more.
The good news for Snap is that not only is augmented reality entertaining, it’s also a revenue driver. Snap recently introduced an augmented reality feature it calls “TrueSize,” which consumers can use as a shopping experience.
Clothing company FarFetch (FTCH), for example, uses Snap’s AR technology in a way that consumers can virtually try on and shop a variety of jackets. Nike (NKE) has integrated Snapchat’s technology as part of its “Play New” advertising campaign.
Snap calls itself a camera company. By downloading its Snapchat app to a smartphone, users have access to a wide range of features. Once a photo or video is taken, users can manipulate and change the content in multiple, often playful, ways. For example, people can be integrated into a 3D-animated cartoon. They can also discover and purchase fashion items, buy tickets, play games, catch up on news and entertainment and share their content with other Snapchat users. Snap is continuously adding new features and partnerships with other companies.
Snap has stitched together a lengthy series of new products and services over the last few years. This includes Snap Games, a live multiplayer gaming platform. It also added more augmented-reality features to its Snapchat platform. And it expanded a line of original shows designed exclusively for its Snapchat audience. The company also added mapping features.
Cyclical Events Boosting Social Media Stocks
Social media stocks like Snap have been on a roller-coaster ride over the last year, buffeted by the pandemic.
The impact that the omicron variant could have on social media stocks as the new year begins remains unclear. When the pandemic kicked up in 2020, consumers flocked to social media sites such as Pinterest (PINS), Etsy (ETSY) and Snap for various reasons. The stocks steadily climbed but reversed as quarantines ended.
For now, the advertising outlook for social media stocks looks bullish. Ads account for the bulk of revenue these companies receive.
Digital ads overall will exceed 60% of global ad spending for the first time in 2022, according to Zenith Media. Zenith expects social media stocks will see ad spending rise to $177 billion in 2022. It will overtake television and further surge to $225 billion by 2024, Zenith says.
Helping the ad marketplace in 2022 will be three cyclical events. The Beijing Winter Olympics begin Feb. 4, while the FIFA Men’s World Cup in soccer starts Nov. 21. Also, the U.S. midterm elections in November will also produce incremental increases in ad spending.
It’s a positive outlook for social media ad spending. But uncertainty remains over whether Congress will pass new regulation upending the social media business model.
Technical Analysis Of Snap Stock
A technical analysis of Snap stock is a key component of determining whether it’s worth buying.
The IBD Stock Checkup tool shows that Snap has a weak IBD Composite Rating of 43 out of a best-possible 99. When choosing growth stocks for the biggest potential gains based on the CAN SLIM investment paradigm, focus on those with a Composite Rating of 90 or higher.
SNAP has a lowly Relative Strength Rating of 11. The rating means that snap stock has outperformed just 11% of all stocks in the IBD database over the past 12 months. Ideally, look for stocks with a rating of 80 or higher.
Is Snap Stock A Buy Now?
Snap stock is not a buy. Shares currently trade near a 16-month low.
Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.
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