Ending the gaining streak, Snap stock enters correction mode

Media sharing platform Snap, Inc. (NYSE: SNAP) has been in the spotlight in recent weeks for the sharp movements of its stock, which maintained a steady uptrend. On Monday, the stock suffered one of the biggest intraday losses in recent times, marking a reversal of the recent trend wherein it made strong gains. Earlier, music streaming site Spotify announced a deal with Snap allowing users to share music and podcast on Snapchat.

Snap shares ended Monday’s trading down 7.8% after staying low throughout the session. A few days ago, they had climbed to the highest level in nearly three weeks. The market seems to have reacted to reports that app downloads declined by nearly a fifth in the latest quarter, compared to the previous quarter when the newly added face-swap feature spurred strong user growth.

The photo-sharing app got a major boost last week after brokerage Evercore upgraded it to outperform from in-line and lifted the price target by two dollars to $20, citing the company’s advancements in the gaming space. The analyst also predicted that Snap would generate about $350 in gaming revenues in the next three years, giving a major push to margins.

Another factor that brightened investor sentiment is the company’s ability to give stiff competition to Instagram this year, compared to the sluggish progress it made in 2018 in terms of user growth. Moreover, Snap has expedited its recovery from the slowdown that followed last year’s botched upgrade, while the incorporation of new technology like AR resulted in increased user engagement.

Related: Snap Q2 2019 Earnings Conference Call Transcript

Encouraged by the positive momentum, the management is currently looking for a 46% annual growth in third-quarter revenues and a corresponding increase in user-base.

Snap’s market value nearly tripled this year and the shares have crossed the $15-mark once again. The stock gained about 65% in the past twelve months and outperformed the market, underscoring the view that it is overvalued. It moved up nearly 7% last week alone.

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