A 50% plus plunge, is the last thing Snap Inc. (NYSE:SNAP) investors expected after a solid start to the New Year. Sentiments have changed, as the company appears to have crumbled under pressure and in the process attracted immense short selling pressure.
Sell-off Trigger
Ever since the stock rallied by 28% in February, prospects have changed, and the stock has continued to hit lower lows. Fuelling the sell-off wave is growing concerns that the social media network is losing users at an alarming rate. Concerns that WhatsApp and Instagram pose a significant danger to Snapchat’s growth prospects have all but exacerbated the situation. The Facebook-backed applications have already ruined Snapchat growth prospects by cloning most of its new features For status, WhatsApp status feature, which is a copycat of Snapchat Stories, attracts more than 450 million users daily. Snap Chat Stories, on the other hand, has had to contend with 188 million users. Snap’s failure to indicate how it intends to attract new users has also had a negative impact on the stock’s sentiments in the market. The stock is currently languishing at all-time lows as short sellers remain in firm control.
Snap Price Analysis
After the recent plunge lower, the stock faces immediate support at the $6 a share handle. A breach of the critical support level could leave the stock susceptible to further declines, amidst soaring short selling pressure. For the stock to bounce back, the company needs to serve a groundbreaking catalyst. Currently, the stock faces immediate resistance at the $7 a share handle on any movements on the upside. However, as it stands, the stock faces an uphill task to bounce back given that investor’s sentiments and confidence in the company has hit at an all-time low.
Snap Slowing Growth Widening net Loss
Snap has been on a trajectory of slow growth ever since it reported breathtaking fourth quarter financial results in February. While second quarter financial results did indicate a 44% year over year increase in sales, concerns about widening net loss appear to have offset the gains.
A net loss of -$353 million or 0.27 cents a share all but fuelled a sell-off wave that has since plunged the stock to all-time lows. The company reporting the first-ever decline in daily active users also accelerated the sell-off, given that the app’s growth metrics are dependent on the number of people using the app on a daily basis. A 2% drop in active users is the last thing investors expected.
Snap has also faced the wrath of short sellers on concerns that the government might move to regulate the social media sector. Reports that foreign governments were using Facebook and Twitter to influence elections all but triggered a sell-off wave that continues to drive social media stocks lower in the market.
Even before the dust on government scrutiny of social media companies settled, Snap found itself on the receiving end, over the potential impact of rising interest rates. The trade war between the U.S and China has to some extent, also triggered a sell-off in the broader stock market.
Bottom Line
Snap finds itself in a precarious position given the threat posed by Facebook and its other social networking apps. There is no doubt that the app is struggling to find a place to grow in the social media space especially on the likes of Instagram and WhatsApp copying most of its new unique features.
If recent price action activity is anything to go by, then it would be naïve to expect a turnaround anytime soon. Until the social networking app finds a way to grow daily active user’s numbers, the stock looks set to remain under pressure in the market.