by Ian Harvey
October 22, 2020
Snap Inc shares traded at an all-time high on Wednesday after the company beat third quarter 2020 top and bottom-line estimates by wide margins. At least 15 analysts lifted price targets after the release, with the new Street high at $50.
Stock Options Made Easy “Earnings Predictions Members” have already made 376% potential profit on this trade, which was executed on Monday, October 19, 2020.
Is it time to take profits on this options trade; or wait until expiry on November 20?
Snap Inc shares traded at an all-time high on Wednesday after the company topped expectations on revenue and surprised with an adjusted profit. The company saw its daily active users near 250 million and a boost in digital ad spending.
Much of this uplift was due to advertisers’ stepped-up spending and consumers’ increased use of their phones for messaging and entertainment during the pandemic.
The price of Snap Inc shares increased more than 24% after reporting record results during after-hours trading on Tuesday. This rise continued on Wednesday hitting a high of $38.89; the previous days close saw the stock sitting at $28.45.
Snap Inc shares have broken out above the 2017 high after a blowout quarter and may be on track to rally into the $50 mark.
The social media company reported an adjusted profit of 1-cent per share on revenue of $678 million. Wall Street expected an adjusted loss of 5 cents on revenue of $550.5 million. Revenue jumped 52% from the year-ago period.
This compares to a loss of $0.04 per share a year ago. These figures are adjusted for non-recurring items.
This quarterly report represents an earnings surprise of 116.67%. A quarter ago, it was expected that this company behind Snapchat would post a loss of $0.09 per share when it actually produced a loss of $0.09, delivering no surprise.
As well, Snap posted revenues of $678.67 million for the quarter ended September 2020, surpassed the Consensus Estimate by 23.25%. This compares to year-ago revenues of $446.20 million. The company has topped consensus revenue estimates three times over the last four quarters.
Snap reported daily active users of 249 million, up 18% from the year-ago period. The company had initially projected users in the range of 242 million to 244 million. Analysts expected 243 million.
"We're excited about the growth of our business in the third quarter as we continue to make long-term investments in our future," Chief Executive Evan Spiegel said in written comments with the earnings release."The adoption of augmented reality is happening faster than we had previously anticipated, and we are working together as a team to execute on the many opportunities in front of us."
Let’s Have A Look At The Recommendation…..
Option trade to consider: Buy the SNAP NOV 20 2020 28.000 CALL at approximately $2.30 (up to $2.50).
(for those members requiring further guidance.....
STOP-LOSS – $0.95
SELL – $4.60)
“Snap Inc. (NYSE:SNAP), formerly Snapchat, Inc., operating the popular multimedia messaging app, will report earnings after the market closes. The consensus estimate is for a loss of $0.05 per share on revenue of $547.24 million; but the Whisper number is slightly better at ($0.04) per share.
Consensus estimates are for earnings to decline year-over-year by 66.67% with revenue increasing by 22.64%.
In the last reported quarter, its subscriber
growth — reflected by Daily Active Users (DAUs) — increased 35 million on a
year-over-year basis and 9 million sequentially.
Snap expects DAU between 242 million and 244 million for the third quarter of 2020, implying year-over-year growth of 15-16% or 32-34 million daily active users. The Consensus Estimate for global DAUs is currently pegged at 243 million.
Social networking company Snap Inc shares has been on a roll amid the COVID-19 pandemic. It beat revenue estimates by a wide margin in Q2 FY 2020 as advertising sales rebounded, and its shares have dramatically outperformed the market thus far this year.
Snap growth is expected to continue when it reports earnings. Analysts expect quarterly losses to widen on adjusted earnings per share (EPS) basis as revenue rises at a strong, but slower pace, compared to the same quarter a year ago.
Snap's revenue growth has been robust since it
went public. Revenue rose a healthy 17.0% pace in Q2 FY 2020, but that was the
slowest growth in 14 quarters.
Short interest has decreased by 34.4% since the company's last earnings release.
Snap Inc shares have been benefiting from a spike in the usage of Snapchat. The company has been focused on continuously adding a set of innovative features like Lens Studio 2.0, Camera Kit, Snap Minis and Bitmoji for Games, which is making Snapchat more attractive for users and advertisers.
Snap's daily active users have climbed steadily for the past five quarters after plateauing at between 186 million and 191 million users for six straight quarters ending Q1 FY 2019. Since Q2 FY 2019, Snap's daily active user base has been at least 203 million. The company's DAU growth accelerated YOY each quarter from Q2 FY 2019 through Q1 FY 2020. That pace slowed slightly in Q2 FY 2020 to 17.2% YOY as Snap reported an all-time high of 238 million daily active users. That record could be topped in Q3, as analysts predict 243.9 million daily active users, a slight slowdown in YOY growth relative to the previous quarter at 16.1%.
In addition to strong adoption of AR Lenses,
Discover content and Shows are expected to have driven user growth amid
coronavirus-led social distancing guidelines.
The growing adoption of Snapchat among Gen Z (13-24 years) is expected to have driven DAUs. Markedly, it is a larger platform than Facebook FB, Instagram and Twitter TWTR among this demography.
Bank of America Securities analyst Justin Post delivered an upbeat Snap assessment in September, advising that new initiatives including personalized public profiles and user-accessible advanced analytics could act as "potential engagement drivers," increasing revenue.
Wall Street is highly bullish on Snap's long-term outlook, which makes sense given 60%-plus upside since the first trading day of 2020. Analyst consensus now stands at a "Strong Buy" based upon 22 "Buy," 6 "Hold," and just 1 "Sell" recommendation.
Snap Inc shares has significantly outperformed the broader market, with a trailing 1-year total return of 96.2%, more than 5 times the S&P 500's total return of 18.4%.
The stock has been consolidating for the past week and could reach the 2017 high in a pre-earnings speculative bid. It's also possible that an analyst or two will raise price targets heading into the release, also underpinning buying interest.”
Analysts Thoughts Before Earnings.....
Prior to the earnings report, Snap Inc shares were up about 70% this year.
In a report to clients Tuesday, Jefferies analyst Brent Thill said he believes previous guidance set by Snap was "overly conservative given that our checks point to accelerating ad spend each month." He raised his price target on Snap stock to 33, from 30, with a rating of buy.
Last Friday a Credit Suisse analyst team led by Stephen Yu had affirmed its rating on Snap shares at outperform and lifted its price target to $32 from $30.
The analysts cited "potential for better-than-expected daily active user growth due to work-from-home along with a revamped Android app released in more geographies."
He also saw better-than-expected ad revenue. And he said that"Snap is a scarce asset that offers advertisers access to a coveted younger demographic."
At the end of September a Guggenheim analyst, Michael Morris, upgraded Snap to buy from neutral. He lifted his price target on the shares to $28 from $22.
Investors generally "underestimate the long-term advertising market growth potential" and the"sustained revenue and profit growth potential of internet stocks,"the analyst said.
Analysts Thoughts After Earnings.....
At least 15 analysts lifted price targets after the release, with the new Street high at $50 highlighting a major sentiment shift that should translate into much higher prices. The majority of enthusiastic commentary pointed to e-commerce strength and big media advertisers as primary reasons for the high-percentage revenue growth, with the coveted younger demographic offering unique benefits, especially during the pandemic.
Snap Inc shares have added about 75.5% since the beginning of the year versus the S&P 500's gain of 6.1%.
The company that said if the positive advertising trends continue, fourth-quarter revenue may jump 47% to 50% from the same period a year earlier.
Will Snap Inc Shares Continue To Rise?
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