Snap Inc. (Ticker Symbol: Snap) reported better than expected earnings that cruised past analysts estimates earlier this week. The technology and camera application reported an earnings per share bear of a loss of .06 cents per share vs. Wall Street analysts’ estimates of a loss of .10 cents per share. Snap reported a large revenue beat reporting $388 million in revenue vs. Wall Street analysts’ expectations of $359.7 million. Global daily active users (DAU’s) were reported at 203 million vs. analysts’ expectations of 192.4 million.
Snap raised its third-quarter revenue forecast and now is expecting it to be in the range of $410 million to $435 million. The company also increased expectations of its daily active users to between 205 and 207 million which is higher than analysts were expecting at 195.5 million. Snap has been focusing on its core user base of younger consumers, which has been helping the company’s turnaround efforts. Earlier this year, Snap released a gender swap lens that showed users what they would look like as the opposite sex and a baby face lens that would show them as babies have both had success within its user base.
Snap’s Initial Public Offering was March 2nd, 2017 with an opening price of $17.00. It took Snap just three days for the stock to break below its IPO low and the stock has remained under pressure. After a run of bad earnings reports, the stock began a steep downtrend in 2018 pulling back over 75% from its 2018 highs. In the fourth quarter of 2018, Snap bottomed forming a bullish divergence pattern where the stock makes a lower low in price but the Relative Strength Index makes a higher low (as indicated on the chart by the purple circles). Traders and investors sometimes look at divergences for a possible pause within the current trend, which can at times lead to a reversal as occurred in Snap’s case.
In the first quarter of 2019, Snap broke out above its current downtrend in the first quarter of 2019 and shortly after, the stock reclaimed and traded above its 50 and 100-day moving averages. After a positive earnings beat and guidance, the stock rallied back above all of its major moving averages. Snap has been on a much-needed rally so far in 2019, rallying over 160% since the start of the year.
(Chart above courtesy of www.tipranks.com)
Based on a survey of 26 analysts offering 12-month price targets, the average price target for Snap’s stock is $16.78. According to that number, the stock is priced at a premium relative to Wall Street’s analysts and could be considered overvalued around current levels near $17.82.
It has been a long time in the work and Snap has had a past of struggling to make solid profits. It seems as if Snap Inc. is beginning to turn the corner for the better. The social media space is having a very solid start in the first two quarters of 2019. Investors in Snap Inc. should look at their next earnings release on October 27th for fresh news within the company.