Snap Inc.’s (SNAP) stock fell by about 5% on October 23, the day after reporting third quarter results. The company noted that both the top and bottom-lines were better than estimates, while showing improvements in the number of users, and the revenue those users generate. Investors seemed unimpressed.
The stocks trading action was stronger than it may have appeared with the shares holding some key regions of technical support throughout the trading day. It suggests that not all is lost and that the shares of the camera company may rebound by as much as 17% over the short-term, based on the technical charts.
Running-up Into Results
The stock ran up very quickly before the company reported results. In a previous article, it was noted that bullish options betting suggested the stock could rise to around $14.95 by October 25. However, the stock rose to an intraday high of $15.03 by October 22, ahead of the results later that afternoon.
The stock fell following results but managed to hold a critical region of technical support around $13.16. It also managed to maintain a bullish reversal pattern known as a falling wedge. That pattern would suggest that Snap’s stock is likely to rebound by 17.4% to a level of technical resistance at $15.50 from its price of about $13.20 on October 23. However, should the equity fall through support around $13.15, the decline could be steep, with the shares dropping by almost 10% to $11.90, its next region of technical support.
Better Than Expected Results, Guidance Slight Miss
Overall, the company posted solid results, with a loss of $0.04 per share, which was narrower than forecasts for a loss of $0.05 per share. Additionally, revenue beat estimates by over 2%, at $446.2 million. The company gave revenue guidance that was $550 million at the mid-point of the range, slightly less than the forecast of $555.31 million.
More impressive, and what may matter for the longer-term health of the company is the rise in the number of daily active users which increased to 210 million, from 203 million in the second quarter, and 186 million from the year prior. Additionally, average revenue per user (ARPU) rose to $2.12, up from $1.91 in the previous quarter and was better than its prior record high of $2.09 in the fourth quarter of 2018.
Overall, these are very healthy trends and continue to suggest that Snap is on the mend after six straight quarters of stagnating user growth. Additionally, seasonal trends suggest that revenue per user should continue to climb in the fourth quarter.
The Stock Isn’t Cheap Versus Peers
Snap’s stock doesn’t come cheap, trading with a one-year forward price to sales multiple of almost 7.8. That is higher than Facebook Inc.’s (FB) multiple of 6.2, and slightly higher than Twitter Inc.’s (TWTR) multiple of 7.3. While, the stock shows the promise to rebound over the short-term, the valuation suggests the expectations for future gains should be contained, as longer-term advances may be limited.
Michael Kramer is a financial market strategist and the portfolio manager of the Mott Capital Thematic Growth Portfolio.
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