As I’m sitting here eating my cereal this morning, I can’t stop thinking about Snapchat. It’s a company that has had reliably negative sentiment and coverage since its disappointing earnings release back in May, and has seen short interest increase about 2% over the last quarter (though you’ve seen short sellers button up positions over the past few days ahead of the release, partially explaining the little bump shares got yesterday). And why shouldn’t it have such negative coverage? The company stated back in May it was lowering its revenue growth guidance for the next quarter amidst slowing ad interest and user growth. Sounds like a dog with fleas, right?
Perhaps. Perhaps not.
I don’t usually advise speculative trading because it’s usually unprofitable and highly risky. However, so long as you are comfortable losing all of it, and it’s a relatively small sum of money, I actually thinking $SNAP has a lot of short term upside potential.
Whenever investor sentiment has become universally bullish or bearish on a particular company, you have to ask yourself whether the pendulum has swung too far. In $SNAP’s case, I think it has. Almost every reporter and analyst on the street is expecting a total bust this afternoon when Snapchat releases earnings for this quarter. That gives us a unique buying opportunity.
We’ve seen other social media giants like $FB and $TWTR take big hits after earnings call this quarter as well. Both cited the newly implemented GDPR as one cause of the revenue slow down, but both also saw a great deal of criticism from users and lawmakers alike because of their roles in data privacy scandals and the Russian misinformation campaign. While Snapchat has not been totally immune to these critiques, or GDPR, the blow to user growth should be much more muted.
In addition, with expectations so universally low, we really only need a victory at the margins for the sentiment to become positive enough for forward momentum. And there have been some developments to suggest that a an expectations beat is possible.
For starters, Snapchat is finally in the process of completing its transition to automated advertising sales, a far more efficient process than the manual block ad buys before. Analysts only wanted to discuss a 70% drop in pricing (which really should be viewed positively), ignoring the massive growth in aggregate ad impressions. Advertising is the key here, because the company presents a better value proposition for exposure to millennials and centennials than $FB or $TWTR, both of which are already slowly becoming old news for kids (one survey found 79% of people 13-18 had Snapchat, compared to just over 53% for Facebook). Bringing on VP of finance Tim Stone from Amazon also can’t hurt.
Don’t take just my word for it. Note 13F filings recording a more than 18% increase in institutional purchases of $SNAP on the open market, as well as more the than 800,000 net shares acquired by company insiders over the past three months. Offering lower guidance while picking up more shares on the cheap? Nice to know the company is bullish.
In any case. I think $SNAP has some upside potential in the near term. Good trade if you’re willing to take the risk pre earnings, but this is no doubt a speculative move. Warren would not endorse, but you’re playing with house money after y’all burned me on the $TSLA short.
Stack that paper lads.
TRADE $SNAP LAST $13.06
AF
Submitted August 07, 2018 at 10:22AM by alexfialfilet https://ift.tt/2vqZrWJ
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