Snap Steps into the Gaming Business

Snap Inc. (Ticker Symbol: SNAP) released news last week that they are going to join Apple (Ticker Symbol: AAPLWealth Strength IndexAAPL is Moderately Flat and trending Up) and Google (Ticker Symbol: GOOGLWealth Strength IndexGOOGL is Extremely Flat and trending Up) on a journey to grab market share from the multi-billion dollar gaming industry.  Snap announced last week that they will make six new games that will roll out on its original and most used app, Snapchat.  The younger gaming audience is flocking to free-to-play games, such as “Fortnite” and “Apex Legends” and this is Snap’s attempt to capture their interest.

Snap is hoping the new games will lead to more advertising dollars for the application using six-second video ads.  Snap’s new gaming advertising model is different than that of Apple and Google’s gaming services.  Apple’s new gaming service, “Apple Arcade” will consist of over 100 games exclusively for Apple devices.  Google is releasing a new streaming gaming service called “Stadia” which will allow users to play top quality games without having to buy expensive gaming consoles.  Neither Apple nor Google have come out with prices for their future services.

Snap will release its first original game called “Bitmoji Party” that allows users to play with their Bitmoji avatars which are cartoon-like versions of themselves.  The company has future plans to release a battle royale style game to compete with “Fortnite” and “Apex Legends.”  Snap also announced plans to make a new lineup of original shows that users can watch on the Snapchat app.

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, since then, the stock has been 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 that same year, the stock found a temporary bottom while forming a bullish divergence indicated by the yellow arrows on the chart. (Lower low in price, and a higher high in RSI)

In the first quarter of 2019, Snap broke out above its current downtrend and shortly after it reclaimed and traded above its 100-Day Moving Average.  After a positive earnings beat and guidance, the stock rallied back above its 200-Day Moving Average.  Snap has been on a much-needed rally so far in 2019, rallying over 100% since the start of the year.

(Chart above courtesy of ​www.tipranks.com​)

Based on a survey of 27 analysts offering 12-month price targets, the average price target for Snap’s stock is $9.80.  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 $12.27.

The investment community is still a bit skeptical about Snap’s ability to maintain a consistent user base even after its recent better than expected earnings beat in the fourth quarter of 2018.

The move into the multi-billion dollar gaming industry could be difficult to break into but, if Snap is successful, it would open up a new stream of revenue which is much needed by the company.  Keep a lookout for future news and updates on Snap’s new gaming service.

 

 


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