After becoming the poster child for overpriced and overvalued IPOs in 2017, many on Wall Street thought that shares of Snap (NYSE: SNAP)
were destined to fail. And for a while they were right. Having traded at almost $30 share on their first day, they proceeded to lose over 80% of their value in the following 18 months and at one point exchanged hands for less than $5 a share.
The writing appeared to be on the wall for the company most well known for their Snapchat app, but January 2019 heralded the start of a rally that looks ready and willing to continue into 2020. Shares ripped 275% higher into July of last year and have consolidated nicely since with plenty of support and resistance lines being formed and coming into play in the months since. This kind of action signals a certain maturity forming in the stock and the company and should be welcomed by investors. Since bouncing off support in October, shares have followed a steady uptrend and sit just below last July’s highs.
Big Name Upgrades
The company’s performance over the past twelve months hasn’t gone unnoticed and upgrades have been flowing in since management started turning the ship around this time last year. Stifel, Rosenblatt, Evercore, Susquehanna, Guggenheim, Morgan Stanley and Credit Suisse are just some of the big names that have come out strong for Snap and the stock has continued to justify their positivity.
Snap’s move into video games, a growing user base and an improving ability to increase its average revenue from users have been cited as the big drivers behind the rally. Just like Facebook (NASDAQ: FB) who also boasts a huge daily active user base, it’s all about the monetization and for a company that can boast over 200 million daily active users, it appears they’re only just starting to scratch the surface of efficiently doing so. Last week’s $166 million acquisition of Ukranian start-up, AI Factory, shows the company is focused on continuing to innovate to help maintain the momentum.
Snap (NYSE: SNAP) Earnings Impress
The most recent earnings report came towards the end of October and showed an impressive 50% growth in revenue year over year. While EPS was in the red, both the headline numbers beat analyst expectations. Daily active users increased 13% year over year while operating cash flow jumped 43% year over year as well.
CEO Evan Spiegel painted a rosy picture when he remarked how, “we delivered strong results this quarter, and we are pleased that the investments we have made are continuing to drive the growth of our community and our business. We are a high growth business, with strong operating leverage, a clear path to profitability, a distinct vision for the future, and the ability to invest over the long term. We are excited about executing on the many opportunities in front of us.” This kind of positive, internal momentum has been translating into the strong share price action we’ve seen in recent weeks.
Investors looking to get involved at these levels should be mindful of RSI being above 70 on the daily chart. This suggests that shares are becoming overbought but considering they’re on the verge of breaking to 52-week highs, it’s not too much of a red flag just yet. If anything it tells us that there’s solid buying momentum behind them and should be looked upon favorably by the bulls. On the weekly chart, RSI is only just above 60 which is also a healthy bullish number for those looking to get long. Also on the weekly, the stock’s MACD is about to have its first bullish crossover since Jan 2019 and we can all see exactly what happened to shares following that signal this time last year.
If the stock can get above the $19 level in the coming weeks, there’s no reason it shouldn’t try to break the previous high from February 2018. Surprisingly good earnings sent shares up 60% back then but they were quick to fade back into a downtrend. This time it feels as if there’s something more behind them. The company has shaken off the negativity surrounding their shambles of an IPO and looks ready to stake its claim as a maturing tech company worthy of our attention.
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