by Ian Harvey
April 23, 2020
Snap stock soared more than 36% Wednesday after reporting quarterly results that beat Wall Street estimates.
And Members of Stock Options Made Easy “Earnings Predictions” made potential profit of 335%, using a CALL OPTION.
Where to now?
Snap stock ripped higher Wednesday, after presenting excellent quarterly results that beat Wall Street estimates, but the social media outlet pulled its guidance for the second quarter due to Covid-19 market conditions.
Late Tuesday, the company reported an adjusted loss of 8 cents per share on revenue of $462 million. Wall Street expected a loss of 20 cents on revenue of $427 million, according to FactSet. Revenue climbed 44% from the year-ago period.
Daily active users jumped 20% to 229 million, beating Wall Street estimates of 225 million. Snap gets about 98% of its revenue from advertising.
The company is the owner of Snapchat, a social mobile-messaging platform popular with the under-30 crowd. It competes mostly with Facebook's Instagram platform. On average, more than 4 billion Snaps were created each day in the first quarter, Snap said.
An option call trade, based on the fact that the good news would outweigh the bad news surrounding the pandemic effecting direct-response advertising, was recommended to Stock Options Made Easy “Earnings Prediction Members” on Monday, April 20, 2020, bringing the potential profit to 335% by close of the market yesterday.
The rally marked Snap’s largest single-day percentage gain since February 07, 2018, when the stock climbed 47.6%.
Snap stock was the most active on major U.S. exchanges in Wednesday’s trading, surging 36.7%, to close trading at $17.01.
Snap stock, which fell sharply in the first quarter, is up about 65% since hitting a one-year low on March 18.
The Snap earnings report comes as investors grow increasingly concerned about the degree that ad spending would decline due to the Covid-19 pandemic. The amount of time consumers are spending on social media platforms like Snap, Facebook and Twitter has been rising as consumers shelter at home during the coronavirus outbreak. However, digital advertising revenue and spending have weakened in the face of a struggling economy.
The company said: "Given the uncertainties related to the ongoing Covid-19 pandemic and the rapidly shifting macro conditions, we are not providing our expectations for revenue or adjusted EBITDA for the second quarter of 2020."
Positive Factors from Snap Stock Earnings Report .....
Revenue rose 44% despite 25% of digital ad categories (like hotels and film marketing) stopped advertising.
Snap is being viewed less as an "experimental" venue for advertisers and more of a "core ad partner."
Free cash flow of negative $5 million marks a "dramatic" improvement while Adjusted EBITDA margin improved "strongly" from negative 39% in the prior year to 18%.
Impressions nearly doubled in the quarter while average revenue per user rose 20% from last year to $2.02.
Analysts Thoughts About Snap Stock.....
Many analysts saw a more mixed picture in the company’s latest numbers, however. MoffettNathanson analyst Michael Nathanson called the results “hopeful and frightening at the same time.”
In an encouraging sign, Snap was able to boost revenue by 58% in January and February, which Nathanson said marked “an acceleration off an already impressive 44% run-rate to close out 2019.” The bad news is that revenue growth then slowed to 25% in March, 15% so far in April, and 11% in the week leading up to Snap’s report.
He called that a “jaw-dropping” -4,700 basis-point deceleration from the company’s performance in January and February.
“We believe this collapse in Snap’s ad revenue growth is a concerning sign for Google, Facebook and the rest of the digital advertising industry, which are coming off lower levels of growth than the 50+% base at Snap, and are also exposed to the long tail of [small- and medium-size businesses] disproportionately hurt by COVID-19,” Nathanson wrote. “So, we should expect to see negative ad revenue growth at Google and Facebook in 2Q.”
"All advertising spending is sensitive to the vicissitudes of the economy," Monness Crespi Hardt analyst Brian White said in a note to clients Monday. "It is clear that digital advertising spending will be under significant pressure during this downturn."
Wedbush analyst Michael Pachter was less certain about Snap’s ability to withstand the crisis, especially relative to peers.
“The winners in digital advertising are those companies who deliver consumers likely to purchase the marketer’s products, and we suspect that Snap’s user base, which skews younger than competitors Twitter, Alphabet or Facebook, may suffer a higher rate of unemployment as the recession worsens,” he wrote. “If we’re right, Snap may see its market share of the digital advertising landscape erode, and it may struggle to grow revenues until the recession ends and employment returns to a more normal level.”
Of the 41 analysts who cover Snap’s stock, 26 have buy ratings, 14 have hold ratings, and one has a sell rating, with an average price target of $16.68.
Snap's management noted January and February revenue growth accelerated versus fourth-quarter results as the Snapchat platform evolved to become an "always-on channel" for new advertisers, the analyst wrote in a note. This solidifies the bullish stance that Snap's turnaround process is real.
Snap stock report signals the company is "more resilient" compared to other internet advertising beneficiaries
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An Important Note: That any suggestions for options trade considerations require investors/traders to use their own discretion as to when to enter or exit! As well, it is advisable to do further research and due diligence before executing your trade.
It is sometimes best to exit a trade, if there is already sufficient profit accrued, before an earnings report is presented. GREED can be the undoing of a nice profit!