Shares of social media platform Snap Inc.(NASDAQ: SNAP
) have been hard hit by the stock market sell-off as the S&P 500 (NYSEARCA: SPY)
collapsed over 35 percent in just under a month. Snap has been on an innovation streak revamping growth initiatives at the end of 2019. The coronavirus pandemic hit all the social media stocks, but the mandated social distancing enforcement both domestically and globally could result in an unprecedented spike in Q1 2020 user engagements. The recent selloffs may present a compelling buying opportunity at a deep discount.
Augmented Reality Platform
Snapchat is a social media platform centered around augmented reality (AR) photos, videos, shows and story content created by its community of users via camera app or Snapchat Spectacles (glasses). While they are arguably a distant third place behind Facebook (NASDAQ: FB) and Twitter (NASDAQ: TWTR) among publicly traded social media platforms, they are growing into a dominant AR-enabled social media platform for the Generation Z demographic (born between 1995 and 2019), true digital nomads that embrace brevity. The improved machine learning algorithms have considerably bolstered the ease of growing individual social networks with relevancy in surprisingly intuitive introductions. Their curated content including Snap Original Shows are being watched by more than half of the Gen Z population.
Growth Engines Ramping Up
In their Q4 2019 earnings release, SNAP saw 218 million daily active users (DAU), a 17-percent YoY increase. Over 75-percent of users engage in AR on a daily basis. Over 200 million users engaged AR on Snapchat over 13 billion times, up from 9 billion the prior year. For easier onboarding of advertisers, Snap allows any company to create Lenses through their Lens Studio platform to submit to the community. Snap announced that McDonald’s (NYSE: MCD) and Coca Cola (NYSE: KO) was the first brand partners to utilize Snap’s proprietary Scan camera technology that delivers branded AR experiential promotions. The initiatives rolled out in 2019 including over 150 partner app integrations, the launch of Cameos video editing tool and three new leaderboard games enabling Snapchatters to compete with friends worldwide should improve engagements. Revenues rose 44 percent YoY in Q4 2019 and up 45 percent for FY 2019 at $1.7 billion. Global ARPU increased by 23 percent YoY. Forward guidance for Q1 2020 sees revenues between $450 million to $475 million, up from $320 million YoY.
Social Distancing Bolsters Snapchat Engagements
The spread of coronavirus has prompted school systems throughout the world to temporarily shut down through the spring and possibly into the summer months. Superintendents across the nation have emphatically ordered social distancing for students, canceling activities and possibly the school year until the COVID-19 pandemic dissipates. In times of isolation, AR provides a more thoroughly engaging 3-D experience of sight and sound as opposed to 141 words (TWTR). The seamless ability to communicate and engage with AR technology can be an entertaining escape during quarantines. On March 24, 2020, Facebook announced spikes in user activity, but ad revenues were taking a hit especially in countries with aggressive COVID-19 actions. It cited Italy as an example where user engagement spiked over 70-percent, but ad revenues fell. Most of the usage was in messaging, voice and video calling where monetization isn’t as prevalent. Facebook is testing its own disappearing messaging through Instagram, but still in early development. The impact on Snap’s Q1 2020 ad revenues may be in question, but a surge in March daily active users (DAUs) could exceed expectations dramatically.
Opportunistic Buy Levels
Using the rifle charts on wider time frames to lay out the playing field suitable for swing traders and investors. The daily chart made a market structure low (MSL) trigger above $9.68 as the stochastic formed a mini pup coil through the 20-band. While this is an oversold bounce, the more opportunistic entry would be on a pullback to the 5-period moving average (MA) near the $10.14 Fibonacci (fib) level to the $9.68 MSL trigger range with an add on pullbacks towards the $7.72-$7.40 stick 2.50s price zone. Upside targets would be a move towards the $12.91 super fib then $14.74 fib. The spike in March active users bolstered by social distancing mandates for the Gen Z population could be the silver lining in its Q1 2020 earnings release on May 4, 2020.