After beating Wall Street expectations last night, Snap (SNAP) shares rocketed 36% today. Shares went from $12.45 to $17.01 at the time of this writing. The stock market is so fragile right now that any news can dramatically sway stock prices and Snap is proof of that. Stocks have had a rough past two days, so the company's positive report gave investors confidence to buy. Even though the company posted positive earnings, financial movers aren't so certain that share prices will be able to sustain their recent jump.
Artificial or organic growth?
Analysts expected an adjusted loss of 20 cents per share on revenue of $427 million, but Snap reported an adjusted loss of 8 cents per share on revenue of $462 million according to FactSet.
The company reported a net loss this quarter of $305.9 million, which is less compared to the same quarter last year of $310.4. Average revenue per user also increased to $2.02, which is more than last year's $1.68.
Daily active users increased 20% to 229 million, which Wall Street estimated growth of 225 million.
It's been a magnificent quarter for the company, but how much of this growth is sustainable? It's important to ask how much extra time people have on their hands because of lockdowns and how many decided to try out new apps with their extra time. Once the quarantine is over will all the new users continue to use the app?
'Tis the season of shorting
Snap Daily Chart. Source: TradingView
Almost every time a stock experiences rapid growth it pulls back. Snap shares have a
52-week high of $19.76 and a 52-week low of $7.89. At Financial Movers we're not questioning if shares will fall, but when?
We don't predict that shares will lose all of their gains, but a good 10%, or 12% pullback looks to be in order.
What goes up, must come down.
Snap is no exception.
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DISCLAIMER: This article does not contain financial advice. Any and all market analysis is solely the authors opinion. Investors should do their own research before making any investment.