Volatility Dead Ahead for Snap Shareholders

Snap Inc. (SNAP) reports Q3 2021 earnings after Thursday’s closing bell, with analysts looking for a profit of $0.08 per-share on $1.1 billion in revenue. If met, earnings-per-share (EPS) will mark an eightfold increase over the penny earned in the same quarter in 2020. The stock took off for the heavens after beating Q2 estimates by wide margins and raising guidance in July, jumping nearly 24%, but has barely budged in the last three months.

Third Quarter Under-Performance

MKM Partners’ Rohit Kulkarni previewed the report on Wednesday, noting “While SNAP shares hit new all-time highs on Sep. 24, they have faded since then, and have resulted in intra-quarter underperformance (-3%) vs. S&P 500 (+2%) since 2Q earnings. We agree with our technical analysis, we think Snap shares are likely to trade rangebound around its support and resistance levels, “low 70s” and “mid-80s” after earnings this week.”

Intra-quarter data compiled by Kulkarni looks promising, with the analyst expecting the company to beat Q3 top and bottom line estimates, but not by enough to attract new investment. In addition, he’s looking for trading after the release to focus on Q4 revenue guidance, which is not expected to exceed 50% year-over-year. The number of Q3 subscriber additions could also move the post-market tape, with current estimates around 1 million net adds.

Wall Street and Technical Outlook

Wall Street consensus stands at an ‘Overweight’ rating, based upon 26 ‘Buy’, 3 ‘Overweight’, 11 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $42 to a Street-high $111 while the stock is set to open Thursday’s session about $13 below the median $88 target. The broad range between high and low highlights conflicting viewpoints on the intermediate outlook, which has translated into a volatile +/- 12% implied move after the release.

Snap posted an all-time low in single digits in 2018 and turned higher, returning to the 2017 high in the 20s in June 2020. It broke out on heavy volume in October, entering a trend advance that stalled at 73.59 in February 2021. The stock mounted the barrier in July but has made no progress since that time, grinding sideways in a trading range between low 70 and the mid-80s. It’s now trading in the dead center of the pattern, suggesting a major catalyst will be needed to break the deadlock.

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Disclosure: the author held Snap in a family account at the time of publication.