This Is Where You Should Buy Snap Stock

Snap stock - This Is Where You Should Buy Snap Stock

Shares of Snap Inc (NYSE:SNAP) gave back 5%-plus Thursday and Snap stock is currently down 2.5% in Friday’s mid-day session. By most accounts, Snap is having a bad couple of days. But when you consider that Snap stock rose almost 50% Wednesday, it doesn’t seem quite so bad. The question for many now is, is SNAP stock a buy?

Let’s back up for one second — what exactly got Snap stock moving in the first place? It was better-than-expected earnings, which were reported on Tuesday after the close.

Its per-share loss of 13 cents was 3 cents above analysts’ expectations. Sales of almost $286 million came in about $32.5 million ahead of estimates. Sales were quite impressive in my view, which grew 72% year-over-year. On the user front, Snapchat’s daily active users grew 5% quarter-over-quarter and 18% year-over-year to 187 million.

Honestly, that’s all great. I thought that the quarter was good and Snap stock was deserving of a rally. Perhaps not a 47% rally, though.

Snap’s Fundamentals

Considering Snap’s potent rally, it wasn’t surprising in the least bit to see Twitter Inc (NYSE:TWTR) stock initially jump more than 25% on its earnings results a day later.

At first flying over $34, the stock was on fire. Of course, the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) and the PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQ) falling 3.75% and 4.22% Thursday cut those initial gains in half. But Twitter turning its first profitable GAAP quarter was a good start and CEO Jack Dorsey, like Snap CEO Evan Spiegel, is hopeful about 2018.

We have liked Twitter since $16, so its run above $30 isn’t surprising. However, Snap’s powerful rally is. Although the user growth and revenue growth was impressive, there are still a lot of concerns here.

For starters, net losses came in at $350 million for the quarter. For the year, net losses came in at a blistering $3.45 billion. Annual free-cash flow was a negative $819 million. Revenue for the year effectively doubled from $404 million to $825 million. However, adjusted EBITDA fell from -$459 million in 2016 to -$720 million this year.

I get Snap is a young tech company taking on the likes of Twitter and Facebook Inc (NASDAQ:FB). But these financials are no good.

Analysts expect 57% sales growth this year and another 52% in 2019. They also expect more losses in each of those years. Worse, Snap stock has a $23 billion market cap and is only expected to generate $1.3 billion in sales this year. 18 times revenue for an unprofitable company?

Facebook may have revenue growth estimates of “just” 36% this year. But it trades at only 9 times 2018 sales and is wildly profitable. Why go with Snap stock?

Trading SNAP Stock

I have never, ever been a fan of Snap stock from a fundamental perspective. To me, I always preferred Facebook because it was best-in-breed. If I was going to get away from FB, I wanted TWTR because I thought the product was more valuable and its valuation was lower.

chart of Snap stock price
Source: Chart courtesy of

While we’ve avoided Snap stock as an investment, trading the name is different. We said we’d avoid it because of the fundamentals, but near $13 in late-November Snap stock was looking good.

On the chart, a similar case is developing: $19 could prove to be decent support but $17 should be very strong. Snap stock priced its IPO at $17 and this level has been both support and resistance over the past year. I think if SNAP stock pulls back this far, $17 will hold.

I don’t like chasing stocks that are up 40% in a few days and SNAP will not be an exception. But for interested buyers — for which I am not one — see if you can get Snap stock at $17.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.

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