The positive earnings vibes continued for Snap on Friday. Though SNAP stock was up 22% already, buyers wanted more. After gapping lower Friday morning, bulls rushed in to drive the stock 6.2% higher.
The stock has already blasted above its 20-day and 50-day moving averages and is now a stone’s throw from the 200-day. This will be the first test of this long-term moving average since SNAP fell below it last April.
On the options trading front, calls dominated the session. Total activity swelled to 317% of the average daily volume, with 306,150 total contracts traded. Calls accounted for 76% of the day’s take.
Implied volatility continued its post-earnings drop by inching lower to 63%. That places it at the 45th percentile of its one-year range. Premiums are now pricing in daily moves of 36 cents, or 4%.
There is a Room for Improvement
However, there is still a lot of room for improvement. Its post-IPO price was around $24. The stock has never gone much higher than $30. However, zooming out, it does look like the worst is behind it.
Bear in mind, Snapchat has a big hold on the demographic that advertisers are most interested in – high school and college kids. This means the company has no lack of advertisers. While their user base hasn’t grown as fast as some competitors like Facebook, the social media application is preferred by a growing subset of youth.
Snap, Inc. brought in $100 million more in the fourth quarter of 2018 than it had in the same quarter of last year. The favorable earnings call last week was a big driver of the stock’s growth, but volume seemed to be pushing it in that direction already.
Increasingly, it seems possible we’re entering a new era of social media. The concept of “privacy” has entered the user’s consciousness. Social dating apps like Bumble, which offer users a lot more control over their data and usage, are on the rise. Bumble, interestingly, was founded with money from a lawsuit brought by Tinder co-founder Whitney Wolfe.
What Ben Walsh, an analyst from Barrons thinks it happened is that the recent surge in Snap shares is enough to keep Morris’ rating at “neutral,” because, in his view, the stock’s valuation is balanced.
On Instagram, Morris writes that Facebook ’s product “is an inevitable share taker given its funding and engineering resources”.
” The stabilization of Snap’s daily active users is responsible for a big chunk of the stock’s post-earnings rally. Overall domestic monthly visitation to Snapchat declined at a greater rate than that of Instagram during the year.”
Morris also said that broadly, Snap faces a key question:
“Is the Instagram threat inevitably too big to overcome?”
An Android rewrite is critical for Snap because, while about a third of all iOS devices have Snap installed, the percentage of Android phones with it is only in the single digits. As a result, Morris thinks “investors will likely assume a material ramp in Android usage if a successful, well-reviewed product upgrade is released.”
Several analysts responded to last week’s update by boosting their price targets. Raymond James analyst Aaron Kessler, for one, checked in with an upgrade. Given the stabilization of daily active users following a sequential slide through the first half of last year, and with marketers flocking to the platform, Kessler went from bearish to neutral on the stock.
Snap investors won’t be able to rest easy until the user count improves, but the appeal of the platform is becoming more evident to advertisers. Snapchat claims to reach 70% of the 13- to 34-year-old U.S. audience with premium video ads, a jaded demographics group that’s difficult for marketers to reach.
Heading Hesitantly Into the Future
It’s encouraging that Snap was last week’s hottest NYSE stock and has been one of this year’s biggest winners. It validates my year-end call that Snap would be one of the best performing low-priced stocks in 2019. However, it’s also important not to be spoiled by last week’s torrid run.
Shares of Snap have been volatile the week it reports earnings, but let’s see if you can spot the disheartening trend as we size up its weekly return through the past two years of quarterly results.