Snap (SNAP) stock looks overvalued amid growth prospects

Snap Inc. (NYSE: SNAP) stock remained in cautious stance and overvalued in the face of significant losses and severe competition from TikTok. The company has been planning to grow its business in 2020 and beyond but cost pressures are likely to weigh in the near and long-term.

The company has been struggling to drive user growth and engagement as the majority of the investments were centered around content and augmented reality platforms. Snapchat invests in growing its business for the future as the strength and momentum in underlying business fundaments give confidence in long-term growth and profitability.

Snap has been taking risks to improve its camera platform and its strategy is to invest in product innovation to grow its business. The company continues to face immense competition from companies that focus on mobile engagement and advertising. The company does not expect to experience rapid user growth or engagement in countries with low smartphone penetration due to high bandwidth data capabilities requirement with large coverage areas.

For the fourth quarter, Snap reported a wider loss due to higher costs and expenses despite a 44% growth in the top line. The company’s daily active users (DAUs) grew 17% year-over-year to 218 million during the quarter. The content and augmented reality platforms continue to remain in the main focus backed by a significant portion of Snap’s investments and efforts.

As of December 31, 2019, the company had an accumulated deficit of $6.9 billion and for the year ended December 31, 2019, it experienced a net loss of $1 billion. The company expects operating expenses to increase in the future as it expands its operations. The company is not expected to achieve and maintain profitability if revenue does not grow at a greater rate than its expenses.

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The majority of the analysts recommended a “hold” rating with an average price target of $20. In the performance outlook, the shares continued to be in the negative trend in the near and long-term while remaining flat for the mid-term. The stock has been considered as overvalued at current levels with a bearish pattern in the chart.

The stock, which opened at $13.82 on Wednesday, is below the 50-day moving average of $17.40 and the 200-day moving average of $15.84. The majority of the shares were owned by institutions of 46.14%, while the insiders owned 28.04% of the shares.

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