Snap (NYSE:SNAP) reported its fourth-quarter earnings last week, delivering not just solid year-over-year revenue growth but a surprise profit as well. The company’s daily active users grew by 20% to 319 million for the period ending Dec. 31, 2021. And its Q4 revenue of $1.3 billion was up an impressive 42% from the prior-year period.
With the stronger numbers, Snap also recorded a modest net income of $22.6 million versus a loss of $113 million a year ago. At a per-share profit of just one cent, it wasn’t huge, but it was an important milestone for the company to finally report positive net earnings. Yet another encouraging number was that Snap’s free cash flow totaled a positive $161 million, which was also in the red in Q4 2020 at a negative $69 million.
All in all, Snap had a terrific report and the stock surged more than 60% in after-hours trading – although it did drop 24% on the day leading up to earnings, perhaps with investors worried the stock may underperform. For next quarter, the company anticipates its revenue will be within $1.03 billion and $1.08 billion.
Snap’s improved performance is a positive sign for the business but investors shouldn’t forget this is still an expensive stock, trading at a forward price-to-earnings multiple of 47. If you’re a short-term investor, there could be an opportunity here to take advantage of the renewed bullishness in Snap’s business and user growth. But long-term investors who watch valuations carefully should remember that Snap still has a long way to go in being a safe stock. The wild swings in price are a sign that there’s still plenty of uncertainty and risk with this investment.