After a long wait for tech IPOs on the New York Stock Exchange, Snap Inc. (NYSE:SNAP) arrived with a bang. Early 2017, the firm went public with over 200 million shares on offer. Interestingly, Snap’s shares closed up 44% on the first day of trading. However, the firm’s growth is on the back foot amid tanking share price.
Snap Inc. (NYSE:SNAP) stock price performance
Snap Inc went public with a huge cash balance. As a result, the company invested in growth strategies expected to boost earnings. However, the opposite has been happening.
When the company released the financial results for Q2 2017, the cash balance has grown from $1 billion to $3.24 billion. However, by the first quarter of 2018, the company’s share price was performing dismally.
Early this year, Snap Inc reported millions of additional users of its social media platform, Snapchat. Encouraged by the positive numbers, investors poured money into the company’s stock, sending the share price up.
Nonetheless, the stock price seems to be falling steadily ever since. Currently, the stock is trading a little above its all-time low of $5.99. This is a far cry from the soaring price of $20.57 in February this year.
Price resistance
Since August of this year, the stock price Snap Inc has been on a downward trend. The trend especially kicked off after the disappointing earnings report for Q2 2018.
At the same time, the 200-day moving average indicates a resistance at $11.74. Further, the stock price finds the 50-day moving average resistance at $7.06.
Meanwhile, the stock price is stubbornly stuck at depressed levels with a few cents above the all-time low. This is a reason for investors to worry. Interestingly, with an MA (50) of $7.06 and with more likelihood of going further down, the stock looks quite risky.
It is also evident that the price might not go past the $11.74 ceiling as indicated by the MA (200).
There is another huge worry about the company’s growth. The earnings report for Q3 2018 indicates that the company has $1.4 billion left as cash balance. A simple comparison with the Q2 2017 cash balance of $3.24 billion, it is clear that Snap is haemorrhaging cash dangerously.
As such, it appears the stock price might take even longer in the depression region.
Dwindling users
It seems Snap Inc. will not move out of the woods just yet. The February redesign of the platform such that users could not re-watch stories by friends seems to have irked many. However, it seems the rush to restore the previous version was too little too late.
Snap Inc has reported a steady loss of Daily Active Users (DAU) since the February redesign. In the last quarter, Snap reported a 1% decline in the DAU.
Diversification
Nonetheless, there are signs that the company could shake off the poor performance since February. In Q3 2018, the company reports an improved operating cash flow, having improved by $61 million. The report reveals an improved by the same amount in free cash flow.
Interestingly, most of the reported improvements arise from the launch of Snap Original Shows and the debut of serialized Shows. As such, the company reports increased revenue by 43%.
The diversification could help the company to record better results and perhaps push the stock price past the moving average resistances.
Further, the company is looking beyond the teenagers who make up the bulk of its cult following. Reportedly, the company is targeting the over-35s in a bid to increase users.
However, Issa Sawabini, partner at Fuse Marketing feels that Snap should exercise caution with the new strategy.