Snap Perfectly Positioned for Rally Into Upper 80s
Snap Inc. (SNAP) broke out above five-month resistance after strong Q2 earnings in July and promptly went to sleep, grinding sideways in a dead pattern that’s now lasted for more than five weeks. Breakout buyers have failed to book a penny of profit during this period, with that single price bar acting as an impenetrable barrier. Even so, it’s nearly impossible to make a bearish call on the social media app because their growth has been spectacular in the last two years.
Growth Firing on All Cylinders
The company booked a surprise profit of $0.10 per-share during the second quarter, beating estimates by $0.11. Revenue rose a phenomenal 116.2% year-over-year to $982.11 million, more than $130 million higher than consensus. 293 million daily average users (DAUs) marked a 23% year-over-year increase, inducing executives to issue upside Q3 guidance that now expects between $1.07 and $1.085 billion in revenue, compared to prior $1.01 billion expectations.
Wedbush analyst Ygal Arounia raised his price target to $88 after the news, noting, “Snap delivered exceptional 2Q21 results both on the top line and EBITDA, with materially better than expected 3Q revenue guidance as well. The digital advertising market is clearly strong and picking up steam as the global reopening and strong economic environment moves forward. Snap is seeing strength across the board, from multiple verticals (including retail and restaurants), and across all its ad products.
Wall Street and Technical Outlook
Wall Street consensus stands at an ‘Overweight’ rating after a historic 456% return since the start of 2020, based upon 24 ‘Buy’, 3 ‘Overweight’, 11 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $42.20 to a Street-high $110 while the stock is set to open Tuesday’s session about $12 below the median $87 target. This placement suggests that any positive catalyst will generate a rapid advance to new highs.
Snap completed a round trip into the 2017 high in the mid-20s in July 2020 and broke out in October, entering a sustained advance that stalled at 73.59 in February 2021. A shallow correction worked off overbought technical readings through time instead of price, ahead of a powerful one-day rally after Q2 earnings on July 23rd. A mid-August breakout attempt failed, yielding a slow downward drift that could now offer a low risk buying opportunity.
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Disclosure: the author held no positions in aforementioned securities at the time of publication.