Ever since Snap announced their fourth quarter earnings no Feb. 5, the stock has been on a tear. During the earnings call, Snap posted a narrower-than –expected loss, communicated that the number of daily active users have stabilized and their Collection Ads, which enable a business to showcase four products in a single Snap, drove over twice the return on ad spend versus Q4 2018.
Snap shares are now up more than 100% year to date and on Thurs received a vote of confidence when a once bearish analyst, BTIG’s Richard Greenfield, upgraded the stock from Buy from Neutral and set a $17 price target.
Back in September, Rich Greenfield had downgraded Snap shares to sell with a price target of $5, expressing concern that Snap’s cash burn could require a capital raise by 2020. Snap was also plagued by a redesign snafu which led to a decline in active daily users and saw top executive leave the company within the past year. But today it’s a different tune.
The only reason I haven’t shorted Snap when it was declining in the past because I thought some company was going to fly in a swoop it. However, with the valuation increasing again and what I believe is a dead business model due to Facebook/Instragram and the fact that it caters to only one generation, I think I will get another shot at shorting Snap due to the immediate observations:
Insiders Are Cashing In
will lead to less ad revenue, will lead to less operating income and cash flow,
will lead to less earnings, eventually leading to a lower stock price.
The chart suggests to buy on a pull back to the weekly demand at $9 and short at the daily supply at $17.50.
This post is my personal opinion. I’m not a financial advisor, this isn’t financial advise. Do your own research before making investment decisions.