First, the good news: it appears that Snap Inc (NYSE:SNAP) stock has put rock-bottom firmly in its rear-view mirror. At roughly $15 per share, SNAP stock is a full $4 higher than its $11 low from early August.
Now, the bad news: Snapchat stock is still down 45% since it came public in February, and is trending in the wrong direction again, trading 10% below its October highs. After trading mostly above its 50-day moving average for the last two months, SNAP stock is now on the brink of falling below it, perhaps more permanently this time.
Though SNAP may not plumb the same depths it did in August, more backtracking for a stock that has lost nearly half its value in its first eight months of trading doesn’t bode well for its long-term prospects.
Earnings Loom Large for SNAP Stock
Stuck in a range between $14 and $16 for the last two months, SNAP could go either way at this point. Chances are, it will come down to the reaction to Tuesday’s third-quarter earnings report.
If you’re on the fence about the stock, I’d wait to see which way it moves after Tuesday’s report. A break above $16 could spark a nice short-term rally, while a break below $14 could extend the stock’s post-IPO malaise.
But is SNAP a good buy for the long haul? On the one hand, it doesn’t make money (yet), may have already peaked in terms of widespread acceptance and popularity, and is a bit of a one-trick pony.
On the other hand, its sales and user numbers are growing at healthy clips (we’ll see how healthy after earnings), SNAP stock seemingly has more value at this depressed share price, and it’s a favorite among millennials, the largest generation and perhaps the most impressionable from an advertising perspective. Ads, by the way, account for 96% of Snap Inc’s revenue.
Look, Snapchat will never be Facebook Inc (NASDAQ:FB). But there’s still time for it to be a better public company than Twitter (NASDAQ:TWTR), which has lost more than half its value since coming public four years ago.
For that to happen, all Snap, Inc. would have to do is prove it can make money — something Twitter has never done in any quarter. With the worst of its losses probably behind it, SNAP stock could pique investor curiosity if its losses start to narrow.
Analysts aren’t expecting that to happen anytime soon. Consensus estimates project earnings losses of 65 cents per share this year and 53 cents per share next year. Anticipated sales growth of 80% in 2018 should help offset those ongoing losses, but that’s not enough EPS narrowing to capture Wall Street’s attention.
Long-Term Upside Limited for SNAP
So, for now, I’m skeptical about the long-term prospects for SNAP stock. A couple earnings beats, starting with Tuesday, could change my mind, and alter investors’ similarly pessimistic views on the stock. A breakout to the high side in the coming days would at least create the first real momentum for Snapchat stock since its IPO week.
I’d wait to see if that happens. If it gets above $16, SNAP might be worth a nibble to the speculative investor. But like the photos that appear in the Snapchat feed, that rally may come and go in a few blinks of an eye.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.
