Snap Strength Bodes Well for 3rd Quarter Breakout

Snap Inc. (SNAP) is well-positioned to break out after Q2 2021 earnings on Jul. 20, even though the messaging app provider isn’t expected to post a profit. Price action in the last quarter has been extremely productive, shaking off a 20% decline into the upper 40s in May and carving a steady advance that’s now stretched within five points of February’s all-time high in the low 70s. Accumulation readings have followed suit, lifting to an all-time high.

Management Forecasting 50% Growth

There’s no argument that Snap needs to do a better job keeping users engaged in upgraded features that analysts believe will increase revenue through targeted advertising. Even so, management is forecasting 50% sustained growth in the next several years, raising high expectations ahead of the report. They’ll need to deliver on all fronts to make that happen, but a flurry of Q2 initiatives and updates seem to support that lofty prediction.

Stifel’s John Egbert posted a bullish note after Snap’s Partner Summit in May, noting “a number of product and business updates including an expanded set of augmented reality creation tools, new content monetization opportunities, more capabilities for developers via Snap Kit APIs/Games/Minis, and the company’s next generation Spectacles hardware. He also remarked that Snap now has “more than 500mm monthly active users globally, which compares to 280mm DAUs reported as of 1Q:21 and implies at least 56% daily engagement”.

Wall Street and Technical Outlook

Wall Street consensus now stands at an ‘Overweight’ rating based upon 26 ‘Buy’, 2 ‘Overweight’, 9 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $42 to a Street-high $100 while the stock is set to open Wednesday’s U.S. session about $12 below the median $80 target. Given strong second quarter accumulation, this looks like a perfect set-up for a strong advance into the low 80s.

Snap rallied more than 300% in 2020 before topping out at an all-time high in the low 70s in February 2021. It sold off into the upper 40s in March, rounding out a trading range that has contained second quarter price action. A successful test at range support in May has stroked buying interest, lifting price into a test of the first quarter peak. At this point, all that’s needed for a breakout is a modestly bullish catalyst.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.