As of late, Snap Inc. (SNAP) stock has been getting massacred. With cutthroat competition from Twitter (TWTR) and Facebook (FB) tightening, Snapchat seemed to have hurried to bring out a new interface. While it expected to lower costs and bring down cash burn, the social media app faced the backlash from none other than its loyalists. Let’s see how the stock is doing now and what we can expect in the coming days.
Snap posted narrower than expected fourth quarter loss per share, as 18% year-over-year increase in daily active users, a jump in average revenue per user, auction traction and seasonality drove revenue higher by 72%. Most of the quarterly revenue came from advertisements.
Executive chief Evan Spiegel, who is the third-highest paid CEO ever, was able to pull down cash burn by 49% sequentially, thanks to the management of cash. During the period, the company was able to increase cash, goodwill, marketable securities, and accounts receivable. But, liabilities and stockholders’ equity rose simultaneously.
Also, Snap has been shrinking its employees and has intended to moderate its hiring. Recently, a Wall Street Journal report showed that Snap is laying off about 10% of its engineers. This would mark the third layoffs since going public in 2017. The company is cutting costs through layoffs.
When taking into analysts’ recommendation trends, almost 18 analysts of the total 36 recommended a Hold rating, and 12 rated a Buy or Strong Buy rating. In the past four quarters, the company’s earnings topped estimates only twice.
So will Snap show growth both in the company and in stock?
When looking at the growth estimates, market analysts are expecting a 15% jump in the current quarter, with an annual growth of 9.80% in the current year and a 30.90% jump in the next year. However, looking ahead for the next five years, the Street sees a 61.10% plunge due to competition from Facebook, Twitter, and cell phone companies bringing in their best of the camera along with their own chat community.
Most of the sell-side analyst firms are sticking to Hold rating, hinting to the investors to keep the shares and wait for the company’s performance. But a recent selloff by finance chief Andrew Vollero of 63,117 shares had made experts revisit on the stock and expect that the company is trying to regulate the stock at regular intervals. In contrast, several institutional investors and hedge funds have either raised or lowered their position in the stock.
For the past year, the stock, which had been between $11.28 and $24.40, was below the $16.57 mark from July 2017 until January 2018. When comparing for the past 52 weeks, Snap had fallen 23.51%, while Nasdaq had climbed 24.36% and S&P 500 had risen 13.82%.
The share trading has been huge due to sentiment. Recently, Snap’s stock fell 5% after pop star Rihanna told her 60.9 million Instagram followers about her worries for an ad that made fun of her past episode of domestic violence. Immediately, Snap deleted the ad and even apologized for it.
During the end of last year, Barclays Capital had expected that lots of short sellers are betting against Snap’s stock and has more short interest than peers. The firm believes that during periods of volatility, short covering could provide support and contribute to bullish momentum if the stock starts heading north.
While Snap expected to lower costs and bring down cash burn, the social media app faced the backlash from none other than its loyalists.
The company’s growth is inevitable, and that’s what the market is also expecting. This can be confirmed by the news that Snap is working on two camera-equipped Spectacles glasses and is planning to release two new models this fall. The report also has a scoop for other players in the eyewear industry — Snap could license wearable camera technology to other players.
Despite the fact that Spectacle is a massive failure, selling around 150,000 units and taking $40 million in devices losses, Snap is hiking the hardware instead of ditching it. However, we can expect Snap to produce far fewer units in the next upgrade.
No matter the brilliance of Speigel and co., Snap is not getting the benefit of their ideas and innovations. Facebook’s Instagram, however, was able to add more new users after aping Snapchat’s stories feature. On the other hand, Twitter is working on a camera-first feature that could shift the priority from text to video and images.
Twitter is aggressively going behind new advertising business, after the footprints taken by Snap, which remained popular with advertisers. A Media Radar report suggested that advertisers are likely to spend $1.7 billion on Snapchat campaigns in 2018.
Snap’s stock could react positively only when the company shows improved results and upbeat guidance, or launch innovative market-disruptive products. Maybe that’s what this eerie silence is… the calm before the storm. Let’s wait and watch for now.