After issuing a weak quarterly earnings report on Aug. 10, the insider lockup expiry only compounded the selling pressure on shares of Snap Inc (NYSE:SNAP), and they fell to an all-time low of $11.28.
Last week though, the stock looked as if it bottomed, jumping 18.5% in that time. Could the stock finally have stabilized? Short float is hardly excessively bearish: short float is around 11.5%.
Axios reports that NBC’s daily Snapchat show, “Stay Tuned,” attracts over 29 million unique monthly visitors. The program attracted 1 million subscribers just 2.5 weeks after the launch. If true, Snap’s moat around the millennial crowd will only attract advertisers targeting that demographic.
On closer inspection, the “show” contained only 30 seconds of content. Yet getting one-sixth of the DAUs (daily active users) is still an achievement by Snap.
Sentiment from Analysts Mixed
Analysts have a mixed view on Snap’s stock price target. Aegis Capital’s Victor Anthony, who has a five-star rating on TipRanks on a 69% success rate and a 27.8% average return (over two years), set a $15 price target on the stock.
The analyst thinks Snap will have near-term hurdles but is positive on the long-term outlook. Facebook Inc (NASDAQ:FB) is a clear headwind: Instagram continues to get similar features shortly after Snap rolls them out. Since Facebook gets billions of monthly active users on its site, the extra features will encourage them to sign up or stay on Instagram. Chances then fall that these users will load the Snapchat app.
SunTrust Robinson’s Youssef Squali, who has a 75% success rate and an average return of 33.8% over two years, is bearish on SNAP stock. Squali has a $10 price target. Pivotol Research’s Brian Wieser is similarly bearish with a $9 price target. The analyst cited higher costs associated with the Map product launch. But the financial model implies downside for shareholders in 2017.
Loeb Dumps SNAP Stock
Sometime during the second quarter, a 13F filing revealed that Dan Loeb’s Third Point hedge fund sold its entire stake in SNAP stock. One noteworthy side note is that Loeb started a position in Alibaba Group Holding Ltd (NYSE:BABA) and NXP Semiconductors NV (NASDAQ:NXPI).
Alibaba reported a solid quarter. Average revenue more than doubled on its mobile channel over the last two years. NXP is in the midst of getting bought out. The hedge fund manager clearly picks growing technology plays but likely sees Snapchat as a disappointment.
Loeb probably realized Snap’s prospects were worsening after it reported quarterly results the quarter before (Q1).
Terrible Second-Quarter for Snap Inc
Snap reported revenue growing by just $32 million in the second quarter, matching the growth rate of the quarter in the previous year. Instagram’s aggressive strategy in copying Snap could have had a negative impact on the latter’s revenue.
Yet as Charles Colton once said, “Imitation is the sincerest form of flattery.” Instagram could be validating Snap’s product offering.
While the move is helping Instagram sustain higher user activity, Snap still attracts the most valuable demographic — millennials. If Snap introduces new tools to its users and useful analytics solutions to advertisers, the company’s slowing revenue growth will reverse.
SNAP stock is not for value investors. It is a speculation, just as Twitter Inc (NYSE:TWTR) once was when it IPO’d.
Just as Twitter needed to prove the sustainability of rapid user activity growth, Snapchat must do the same. Even though Twitter failed to keep its users coming back, Snapchat’s fate is not necessarily the same. If its users start to leave the site, then SNAP stock will fall.
In the near-term, the drop in usage is unlikely to pick up because it is still the preferred messaging app for the young crowd. Facebook is just waiting to change that.
As of this writing, Chris Lau did not hold a position in any of the aforementioned securities.