Social media stocks tend to be volatile, but that’s especially true for Snap (NYSE:SNAP). While shares have been stuck in the doldrums lately — up 2% in the last month, down 11% in the past three and flat over the past six months — remember that this stock has been on fire this year, up more than 165% in 2019.
So while the price action over the past six months or so has been underwhelming (and volatile), it’s actually pretty healthy. When stocks post massive moves, it’s good for them to work off that rally. Resting will give Snap time to outperform in the future and is a necessary part of the process. There’s a reason why the market doesn’t move higher in a linear fashion.
In any regard, Snap also continues to outperform its peers. Facebook (NASDAQ:FB) has rallied an impressive 55% in 2019, while Twitter (NYSE:TWTR) is up just 10.5% after its painful spill in October. Meanwhile, the 42-stock Global X Social Media ETF (NASDAQ:SOCL) is up 7.7% in the fourth quarter.
Let’s peek at the charts to see if more upside could be in store in 2020.
Trading Snap Stock
A look at the daily chart below confirms much of what we just talked about. After blazing higher and topping out at $18.36, the Snapchat platform’s shares began to consolidate in late July. At this point, the 50-day moving average and $15.50 level (where the 78.6% retracement also comes into play) were acting as support, albeit with some sloppy price action.
A mid-September surged looked like it was going to send Snap to new 52-week highs. Instead, shares topped out at $18.17, 19 cents short of the prior high. A massive unwind ensued, with shares bottoming out at $13.68 — down 24.7% — just 7 trading sessions later in early October.
So where are we now?
Snap would go on to make another low that month, at $12.71, but has since put in a series of higher lows. That’s formed a solid uptrend mark (blue line), as shares continue to climb.
The stock is now above the 20-day and 50-day moving averages and is consolidating just below that pivotal $15.50 mark. Investors need to be on the lookout for two things now: A breakout or a pullback.
If it’s the former, a close over $15.50 could kickstart a breakout, putting the November high at $15.90 on the table. Above that and $17-plus is technically possible, with $18 remaining pretty stiff resistance.
If it’s the latter and Snap pulls back, look for support from the rising 200-day moving average and uptrend support. Below puts $13.50 on the table and if that fails to buoy the name, a retest of the October lows could be in the cards.
Bottom Line on Snap
For a very long time, I did not like Snap as an investment. The reasoning was simple, as the company was burning through hundreds of millions of dollars and was clearly struggling. Facebook and Twitter had better financials as well.
I would still feel more comfortable buying into a financial juggernaut like Facebook and even prefer the growth potential of a name like Pinterest (NYSE:PINS) to Snap. That said, Snap has progressed a bit.
It’s clear that 2020 will need to be a pivotal year for Snap in order to see continuation on that bullish-looking chart. What would make it such a pivotal year?
Analysts expect Snap to grow revenue another 35.6% to $2.33 billion next year, topping $2 billion for the first time. More importantly though, they expect earnings of 2 cents per share. While 2 cents per share in profit is not exactly blowing the roof off, remember how much cash Snap was burning when it came public.
In its first five quarters as a public company, Snap missed on earnings estimates three times and revenue expectations four times. It’s since beat on both metrics six quarters in a row. This time last year, shares were trading near $5. Now it’s at $15-and-change.
Momentum is turning in Snap’s favor and if the company can deliver on the fundamentals, the technicals are already primed for a rally. If Snap can generate a profit and turn free cash flow positive, bulls will have a much stronger case.