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Snapchat SNAP stock – Is this under-performer worth a look?

By 10/26/2017 No Comments

Snapchat SNAP Stock Analysis:  Chances are, if you’re addicted to social media (like me), you have Snapchat installed on your phone.  If you are completely unfamiliar with Snapchat, here is the 10,000 Ft view.

Snapchat is a social media app that allows users to add filters to their pictures or videos and share them quickly with their social network.  These shares can be public (and last roughly 24 hours), or private (sent directly to a friend or specific group of friends) and they disappear after a short time.  Snapchat has had it’s share of publicity – at first because younger people were using it for sexting and most recently due to its initial public offering (IPO).  Snapchat has brought some innovation to the social media scene causing other apps such as Facebook and Instagram to update their offerings in response to Snapchat’s approach.  

Snapchat SNAP stock went public in March 2017 opening at $17 a share and rising as high as $24/share.  Since then, investors haven’t been so keen on Snapchat’s business model.  Using the IDDA approach to developing an investment strategy for Snapchat SNAP stock, we can figure out if this cheap tech stock can help us profit.

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1- Fundamental Points: Snapchat SNAP stock

Who are they?

Snapchat SNAP stock (NYSE) is based in Venice, CA and according to their website, they refer to themselves as a “camera company”.  Per their company profile:

“We believe that reinventing the camera represents our greatest opportunity to improve the way people live and communicate.

Our products empower people to express themselves, live in the moment, learn about the world, and have fun together.”

While most people are familiar with their app, Snapchat, Snap Inc. has three other products including Spectacles, Bitmoji, and Zenly.

The overall company was founded in September of 2011 and has grown, acquired other companies, resisted buy-outs from folks like Facebook’s Mark Zuckerberg, and is even credited with reshaping the landscape of Venice Beach, helping to lure other tech companies to the area causing folks to dub the new tech hub “Silicon Beach.”

Snapchat SNAP Stock, however, has simply not performed well since it’s IPO in March of this year.  Despite growing its user base and increasing its revenue, Snapchat SNAP stock consistently fails to meet the high expectations of Wall St. analysts.  Recently, after missing targets for Q2 earnings, Snapchat SNAP stock fell to under $15/share.

Good to Know:  Snapchat SNAP stock is reporting Q3 earnings Nov 7, 2017.

 

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In Q2 2017, Snap reported $181.7 mm in revenue (compared to $71.8 mm in the year-ago period) and a daily active user (DAU) count of 173 million.  As of December 2016, Snap Inc. employed roughly 1,900 employees (up from 600 a year earlier).

A techy, innovative social media company who would rather you think of them as a camera company is competing against whom?

The Competition

Snapchat SNAP stock’s top 5 competitors:

  • Alphabet (You might think of them as Google)
  • Facebook
  • Tencent Holdings
  • Naspers
  • Baidu

Those are industry peers so it’s also important to note that Snap, Inc. also considers itself in competition with Apple and Twitter.

 

What are they doing right?

If you ask Wall Street, not much!

Word ’round the campfire is that Snap Inc.’s  CEO doesn’t care much for pleasing Wall Street. During an earnings call in August, Snapchat’s CEO Evan Spiegel seemed evasive in providing analysts the answers they were looking for, with one analyst (unaware he was off mute) exclaiming “I didn’t even understand his response.”

However, there are some silver linings for this stock.  One is that their user base has grown and grown significantly.  Two, they are working on figuring out ways to monetize the communication between that increasing user growth and because of that, their average revenue per user (ARPU) metric is also climbing.  They still spend a LOT of money on R & D. But their gross profit has increased in the past two years.

Unfortunately, analysts lump Snapchat SNAP stock in the realm of Facebook and Google and have incredibly high expectations for the stock.  So when Snapchat SNAP stock fails to meet those expectations combined with Evan Spiegel’s lack of guidance, the stock takes a hit.  As of drafting, Snapchat SNAP stock closed at $14.16/share.

This brings us to the second point of IDDA for the Snapchat SNAP stock analysis: Technicals.

 

2- Technical Points: Snapchat SNAP stock analysis

Taking a look at Snapchat SNAP stock’s 1-year chart, and performing the  Ichimoku and Fibonacci analysis, we can see there is room for Snapchat SNAP stock to grow moderately.

Snapchat SNAP stock YTD chart

Snapchat SNAP stock Technical Analysis - Daily Time Frame Snapchat SNAP stock Technical Analysis – Daily Time Frame

Snapchat SNAP stock price has struggled to break below the daily Ichimoku cloud in the past two months. The future cloud is actually turning bullish, with the pivot line set at the 23% Fibonacci retracement level at 15.22. If the Ichimoku cloud continues to act as a strong support, we could potentially see future growth towards SNAP price immediate resistance levels.

Learn about Ichimoku: Get Ichimoku Secrets eBook

The medium resistance levels are set at the next Fibonacci levels, at 17.80 and 19.83 respectively. This Fibonacci setup retraces the price action since SNAP’s IPO, all the way through its downfalls towards the all-time low price of $11.32.

So, can SNAP make its way back up to these resistance levels? Let’s see if the third point of the IDDA and my other favorite indicators can help us make a decision.

3- Market Sentiment: Snapchat SNAP Stock

Switching our chart to the 4-hour time frame, we notice that the stock price has actually been zig-zagging within an upward channel. As of Thursday, the price hit the lower band of the channel, which also coincides with the Ichimoku cloud. Now it appears to be shifting momentum towards the higher highs.

Snapchat SNAP stock Market Sentiment - 4-Hour Time Frame Snapchat SNAP stock Market Sentiment – 4-Hour Time Frame

We still have mixed signals from the Ichimoku Kinko Hyo’s 4-hour setup though. The Kijun line has crossed below the Tenkan line, while the future cloud is bullish.

Now let’s take a look at other market sentiment indicators.

Snapchat SNAP stock – Other Indicators

Snapchat SNAP stock MACD

 

Unlike my analysis of Texas Instruments, MacD, CCI, and RSI are all sending strong signals that at the moment, Snapchat SNAP stock is a stinker.  So is there a way we can turn this cheap tech stock that thumbs its nose at analysts into a winner?

 

Snapchat SNAP Stock Analysis – Investing Strategy

As the 4th point of the IDDA, you must calculate your risk tolerance before deciding on the investment strategy that is suitable for your portfolio. Join us for a free master class to learn more!

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Despite the signals to stay away at the moment, there could be a time in which Snapchat SNAP stock is right for you, but you must conduct risk management for both yourself and the security you are analyzing. If you try to identify SNAP’s Beta, you’ll be unsuccessful.  But, if you’ve ever dabbled in options trading, you may be able to make some other assumptions about Snapchat SNAP stock’s volatility.

Options trading platforms have Snapchat SNAP stock’s volatility at around 72% implied volatility.  Now, that’s great if you’re an options trader, but it’s bad if you’re betting on a stock’s short to midterm success.  In other words, there’s a lot of activity around Snapchat and my gut tells me it’s not going to bode well.  Much of this is probably due to their earnings announcement on November 7th.  This could cause the stock to push down further or we could see a surge.  At this rate, I am apt to wait until the post-earnings dust clears before we make a move.

Here are Invest Diva’s calculations for important approximate levels, with regards to the Snapchat SNAP stock analysis.

Support Levels Turning Point Resistance Levels

 11.32

 15.22  17.80
 13.18  14.09 19.83

 

You now have the numbers and my gut reaction to make the best decision for your portfolio.  However, you don’t have to rely solely on this analysis.

If you join our investing group here, you’ll get to speak with Kiana and a wonderful community of other traders.  Everyone in the community rocks and you gain access to so much more knowledge!

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Happy Hunting!

Kris Troy

 

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