Snap Stock Providing Pullback Opportunistic

Sunday, March 28, 2021 | Jea Yu
Snap Stock Providing Pullback OpportunisticSocial media platform Snap Inc. (NASDAQ: SNAP) stock had a meteoric rise in 2020 as it benefitted from  pandemic spurred growth in new and active user engagements as a result of stay-at-home mandates. As COVID vaccinations continue to accelerate, money has flowed out of growth and back into value stocks as evidenced by the Nasdaq correction. However, Snapchat may be stickier than the market believes as its refined and levered its technology platforms for both advertisers and content creators resulting in the potential for over 50% annual revenue growth for years to come, with no user or engagement growth. The Company, along with social media peer Pinterest (NYSE: PINS), have managed to remain out of the crosshairs of Congress as peers Facebook (NYSE: FB), Google (NASDAQ: GOOG) and Twitter (NYSE: TWTR) continue to face backlash over censorship, data and privacy issues. Prudent investors looking for a value play among the growth stocks can monitor shares of Snapchat for opportunistic pullback levels to consider building a position.

Q4 FY 2020 Earnings Release

On Feb. 4, 2021, Snap released its fiscal fourth-quarter 2020 results for the quarter ending December 2020. The Company reported an adjusted earnings-per-share (EPS) profit of $0.09 excluding non-recurring items versus consensus analyst estimates for a profit of $0.07, beating estimates by $0.02. Revenues surged by 62.5% year-over-year (YOY) to $911.32 million beating analyst estimates for $855.24 million. Daily active users (DAU) rose 22% YoY adding 16 million new users for a total of 265 million.

Q1 2021 Guidance Raised

Snap raised its Q1 2021 forecast for revenues between $720 million to $740 million versus $703.1 million consensus analyst estimates. The Company expects Adjusted EBITDA between (-$70 million) to (-$50 million) versus (-$81 million) in prior year period Q1 2020.

Conference Call Takeaways

Snap CEO, Evan Spiegel, set the tone, “Snapchat is embraced by a generation that is driving the future. The Snapchat Generation primarily Gen Z and millennials are 150% more likely to communicate with pictures than words and 82% of them believe they have a personal responsibility to change the world.” He went on to expound on the power of its camera and the five billion daily snaps created daily by users, “Cameras are no longer only a means to capture a moment in time or a memory, they now enable a whole world of self-expression and visual communication and we have worked to drive this fundamental transformation since our founding.” Snapchat is a visual platform making it easier to engage as daily active users open Snapchat an average of 30 times per day.  The Company has partnered with numerous media partners to develop unique content and original programming like Wil Smith’s Will From Home, which grew a viewership of 43 million in two seasons. The Company is also growing its above 35 age audience by 25% YoY. Snapchat has the world’s most personalized map that draws over 250 million Snapchatters to “find the people and places that means the most to them”. This includes over 35 million businesses on the map, “for our community to discover and connecting local businesses with prospective customers represents a substantial future revenue opportunity for our business.”

Snapchat Spotlight Platform

The new Spotlight platform enables users to submit their best Snaps in one tap, which then gets reviewed, filtered, and ranked. Top ranking snaps that go viral receive monetary rewards. This has resulted in over 175,000 video submissions daily partially motivated by the $1 million per day incentive program for creators. The Spotlight platform rapidly grew to over 100 million monthly active users in January alone. This is a powerful new driver among the five core Snapchat platforms which also include the Map, Communication, Camera and Stories. The Company has found new ways to monetize enabling businesses to pay to promote their lenses. In essence, the Company has successfully and quite brilliantly populated content to connect with advertisers, consumers with businesses through multiple monetization platforms within a single growing Snapchat community leveraging the network effect targeting the most digitally engaged demographic.   

Analyst Day 50% Growth Claim

On Feb. 23, 2021, Snap Senior Director of Ad Products, Peter Sellis stated that the Company can drive over 50% annual revenue growth for multiple years without any new users or engagement growth. The Ads Manager, which is Snapchat’s self-service ad tool, is the driver of this growth. He noted, “The more advertisers we have, the more diverse the set of ads that we can show. That makes these ads more relevant and it make Snapchatters more likely to engage with them. This in turn drives higher ROI and makes us more efficient with our inventory.” This caused SNAP shares to spike 11% and gap to all-time highs at $73.59 the following day. Shares are been falling ever since. Prudent investors can fine opportunity in the selling.

 

SNAP Opportunistic Pullback Levels

Using the rifle charts on the monthly and weekly time frames provides a broad playing field view of the landscape for SNAP stock. The monthly rifle chart uptrend peaked at the $73.67 Fibonacci (fib) level. Shares collapsed rapidly with the Nasdaq overshooting the monthly 5-period moving average (MA) support at $52.94. This caused the monthly stochastic to peak and cross down at the 90-band. The weekly rifle chart is nearing a potential breakdown with a falling 5-period MA at $59.15 that could crossover the 15-period MA at $56.65, powered by the weekly stochastic mini inverse pup oscillation down. The daily rifle chart formed a near-term market structure low (MSL) above $51.60 versus the monthly market structure high (MSH) sell trigger before $48.32. The bearish weekly formation can provide prudent investors with opportunistic pullback at the $49.21 fib, $46.71 fib, $44.03 fib, $40.74 fib, $37.44 fib, and the $35.59 fib. Be sure to watch together with social media stock peers PINS, TWTR, and FB. Upside trajectories range from the $62.26 fib up towards the $7

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Facebook (FB)2.0$305.97-4.1%N/A34.85Buy$368.42
Twitter (TWTR)1.7$51.81-3.7%N/A-37.54Hold$70.03
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