A week ago, Evercore ISI upgraded Snapchat parent Snap (NYSE:SNAP), touting the potential of its new gaming options. Literally the same day, analysts and observers were lamenting the fact that SNAP stock wasn’t moving higher on the upgrade.
Granted, the lethargy was a disappointment. Right or wrong, most stocks move higher immediately following the announcement of a freshly bullish opinion. To not see it happen this time around wasn’t exactly the norm.
On the flip side, Snapchat stock is anything but your normal name. The company remains trapped between being a startup and being an established outfit. Investors aren’t quite sure how to trade — or even value — it.
If its fans and followers would just take a breath and relax though, they’d find the SNAP stock price is still rising. It’s just doing so on its own terms.
Snapchat is the Real Deal
It’s not a company that needs much in the way of an introduction. Launched in the middle of 2011 and public since early 2017, Snapchat has been pigeonholed as a third social networking platform in an arena with only room for two: Twitter (NYSE:TWTR) and Facebook (NASDAQ:FB).
Except, maybe there’s room for a third one after all.
The past and projected numbers certainly say Snap is doing something right when it arguably shouldn’t be. After a wobbly start as a publicly traded company, for instance, its second-quarter addition of 13 million daily users took the company to a record number of 203 million daily check-ins.
The company is monetizing those users better as well. Last quarter’s top line of $388 million was up 48% year-over-year, and perhaps more importantly, the loss of 6 cents per share of SNAP stock was better than the loss of ten cents per share analysts had been modeling.
It’s a microcosm of a much bigger trend that suggests the company will earn its way out of the red sometime in late 2020 or early 2021.
Failure to Launch Isn’t a Concern
The stock’s chart broadly reflects this continued progress.
After sliding from its IPO price of $17 to last year’s low of $4.82, the SNAP stock price has “snapped” back to its current value near $15.30. The catalyst? Realization that CEO Even Spiegel had found several critical balances between the short term and the long term, as well as the fine line between enough ads and too many ads.
Still, the financial media has remained oddly nitpicky regarding Snap stock.
Case in point: On Sept. 3 Evercore ISI analyst Kevin Rippey upgraded SNAP stock from “In-line” to “Outperform” largely on the additional growth prospects stemming from Snapchat’s foray into gaming. Shares initially moved higher, but before the end of that day’s trading TheStreet.com’s Scott Van Voorhis pointed out that the gains turned back into losses. That same day, Barron’s writer David Marino-Nachison made the exact same point.
Both responses were factually correct. Both responses, however, understated the fact that Sept. 3 was the same day the S&P 500 took a 0.5% tumble. Perhaps more than anything though, both responses tacitly implied the lack of a knee-jerk rally is cause for concern.
Snapchat Stock Chart Tells the Story
The noteworthy reality is, at the times of the upgrade, Snap stock was peeling back from a brush of the upper boundary of an established trading range. It deserved a break — a break from what can only be categorized as an incredibly convincing recovery effort.
That effort hasn’t been an even one, to be fair. But, it’s been a well-defined one, and still is.
In other words, don’t sweat the current weakness, including the bearish start to this week. It’s all part of a bigger pattern in play, and perhaps a pattern that’s looking to close the gap left behind by July’s surge. It’s marked in yellow on the chart above.
The only real worry here would be a failure to find support at the lower boundary of the recent trading range framed by light blue lines. That support, however, is bolstered by the fact that the gray 100-day moving average line is lined up with it.
Looking Ahead for SNAP Stock
Never say never, of course. It’s entirely possible the SNAP stock price could break under that floor currently around $14.10 and continue to slide lower. We’re at a time of year that isn’t exactly friendly to stocks, and Snap isn’t apt to be an exception to that tide.
If the failure to rally immediately following the upgrade is your immediate concern, however, don’t let it be. SNAP stock is still in that hazy period following its IPO where traders are unsure if it’s a trade or an investment. During this interim period, strange things can happen.
Whatever the case, a little more patience than it’s been given is merited here. The bigger picture is still bullish for Snap, whether you’re only thinking in the short term or mulling a long-term position.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about him at his website jamesbrumley.com, or follow him on Twitter, at @jbrumley.