Snap : Its crash is just an opportunity
A day after the stock tumbled, investors saw a buying opportunity.
What‘s happened
A day after Snap plunged 43% on a guidance cut, the social media stock was bouncing back as investors seemed to spy an opportunity in the sell-off.
As of May 25, 2022 at 5:20 p.m. ET , Shares of Snap Inc. surged 10.71% to $14.16 Wednesday, on what proved to be an all-around great trading session for the stock market, with the NASDAQ Composite Index rising 1.51% to 11,434.74 and the Dow Jones Industrial Average rising 0.60% to 32,120.28. The stock's rise snapped a two-day losing streak. Snap Inc. closed $69.18 below its 52-week high ($83.34), which the company reached on September 24th.
The stock outperformed some of its competitors Wednesday, as Apple Inc. rose 0.11% to $140.52, Twitter Inc. rose 3.91% to $37.16, and Meta Platforms Inc. rose 1.41% to $183.83. Trading volume (162.4 M) eclipsed its 50-day average volume of 34.7 M.
So what
On Monday night, Snap issued a filing saying it now expected second-quarter revenue andEBITDAto come in below the bottom end of its previous guidance due to a deteriorating macroeconomic environment. In other words, the company now expects revenue growth of less than 20% in the second quarter, and to report an EBITDA loss for the quarter.
That warning was enough to sink the whole tech sector yesterday with a number of digital advertising stocks falling double digits. However, today investors seemed to spy a buying opportunity in Snap stock, and it's easy to see why.
If Snap's argument about macro conditions is correct, then a 43% sell-off in the stock seems excessive. The company isn't losing market share and its long-term growth plans are still intact. However, there are a number of signs that the overall economy is decelerating. The Federal Reserve is aggressively raising interest rates. Inflation is at a 40-year-high, and a number of tech companies have announced layoffs or hiring freezes.
After yesterday's plunge, the stock trades at a price-to-sales ratio of just five, the cheapest it's been since it went public.
Now what
Advertising is cyclical, so it makes sense that companies like Snap would see demand falling in a weakening economy. However, the overall business still looks solid as it continues to grow its user base and remains popular with teens even as TikTok has grown.
While the next few quarters could be tough for Snap, there's a decent chance the stock could be significantly higher in a few years.
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