Snap Inc.
(NYSE 🙂 has surprised analysts this year by launching a powerful rebound. After hitting the lowest level since the first public offering in December in December, the operator of the popular Snapchat app has risen around 192%. The size of this rebound makes investors wonder if the worst is over for their shares.
The continuing rise in Snap & # 39; s shares is particularly surprising, since this happened at a time when major social media companies, including Alphabet & # 39; s (NASDAQ 🙂 and Facebook Inc. (NASDAQ :), are facing increasing threats from regulatory and antitrust probes.
The only major trigger for the photo sharing app's rally is that teenagers, who make up most of Snapchat's user base, return after the company's controversial redesign last year .
In the latest earnings at the end of April, Snap showed that the number of users was no longer decreasing – revenue growth was better than expected, with a 39% increase in the fourth quarter, and Snapchat added 4 million people to daily users
With some signs of momentum in the company's user statistics, some analysts also find the new features that Snap has recently introduced. Snap game platform and new augmented reality functions that allow users to add images to their hands, feet or body have been very popular in recent months. These features complement the face-distorting lenses of the app, and a gender swap lens that turns a man's face into a woman, and vice versa.
"The newest launch of lenses is one of the most impressive product innovations we have ever seen in the company," said Michael Levine of Pivotal Research in a recent note, after upgrading Snap to buy hold with a price target of $ 17.25. "In our opinion, this is true innovation in augmented reality," he said.
Regulatory Troubles for Social Media Giants
Snap & # 39; s improving financial and user statistics have undoubtedly played a major role in outperforming the share this year, but the regulatory oversight that major social media companies have is another big positive for Snap. An app with a clear and defined audience and with little scope for abuse is in a much better position to withstand potential regulatory changes worldwide than giants such as Facebook and Google – the social media companies some politicians want to break through.
YouTube, owned by Google's mother alphabet, was moving all of the children's videos to the separate YouTube Kids app, according to a report in The Wall Street Journal this week because the site is struggling to convince parents and advertisers that it can protect children from violent, disturbing and harmful content.
As pressure on social media giants increases, as many analysts predict, Snap can become more attractive and can take over the rumors that have somewhat suppressed the extreme movements of the stock price since the IPO
Bottom Line
According to us, Snap remains a highly volatile stock and is not suitable for long-term investors due to the uneven user engagement record, the rising costs and a higher turnover among top managers. Despite the recent stock rebound, it is still trading nearly 13% lower than the $ 17 IPO price, ending the yesterday's session at $ 14.83. Instagram, owned by much larger Facebook rival, still poses an existential threat to Snap that is unlikely to disappear.
Because of these uncertainties, it is too early to assume that Snap's recovery has developed. That being said, Snapstock becomes attractive to contrarians by some of the positive catalysts mentioned above, especially with a growing possibility of a takeover bid.
