Snap (NYSE:SNAP) stock is down and out. Shares have sunk 12% over the past month and many on Wall Street have largely given up on the name. But I believe that SNAP has what it takes to make a fantastic, huge comeback.
Here are four reasons why I believe that buying SNAP on weakness now will turn out to be a great decision for long-term investors.
Snap’s User Growth Is Strong
In the first quarter, Snap’s daily active user growth jumped a very impressive 15% year over year to 383 million. Over the longer term, marketers decide where to spend their ad dollars based on the number of users that platforms attract.
For example, as podcasts have attracted more listeners, the amount of money spent by advertisers on the medium has surged.
Snap’s huge user growth bodes well for its ability to grow its ad revenue over the medium and long term.
Ad Spending by Large Companies Will Rebound
Responding to Snap’s first-quarter results, Truist wrote that Snap had been hurt by its relatively high dependency on large advertisers.
Indeed, many large marketers likely lowered their ad spending last quarter amid the regional crisis and recession fears.
But in recent days, we learned that many large investors bought bank stocks in the first quarter. Moreover, the declines of U.S. bank deposits, which many bears warned would be huge, have turned out to be minimal.
And a recession does not appear to be at all imminent, as the economy grew 1.1% last quarter and, as of May 17, the Fed was predicting that it would expand a robust 2.6% in the current quarter. Further, the central bank was estimating that “real personal consumption expenditures growth” would come in at a strong 1.8%.
Therefore, recession fears are likely to soon greatly ease. As a result, large companies are likely to raise their ad budgets in the not-too-distant future.
Snap Will Make Important Changes
Snap is starting to give marketers the chance to buy ads that it shows in conjunction with its popular short videos. Additionally, the company is allowing marketers to ensure that their ads will be “the first video ad between Friend Stories” viewed by users. And finally, the company has launched a new, free AI chatbot, and it plans to soon start selling ads that will be seen by those who utilize the chatbot.
All of those initiatives, taken together, should positively move the needle for Snap’s financial results and SNAP stock.
Moreover, Truist reported that Snap, as of last quarter, was still having trouble dealing with the ramifications of the changes that Apple (NASDAQ:AAPL) made to its privacy rules. But after Meta Platforms (NASDAQ:META) was able to largely overcome that issue, I’m sure that Snap will be able to follow suit in the medium term.
The Valuation of SNAP Stock Is Attractive
SNAP is changing hands for 2.85 times analysts’ average 2024 revenue estimate. Given that Snap’s user base is growing rapidly and that analysts, on average, expect it to generate earnings per share of 17 cents next year, that’s an attractive valuation.
For long-term investors looking to capitalize on overdone fears about a recession, SNAP stock is a very good name to buy on weakness.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.