Snap (NYSE: SNAP ) is on tap to report earnings this week, and the outlook could be bearish. After last month's earnings reports from Facebook (NASDAQ: FB ) and Twitter (NYSE: TWTR ), the social media sector is in a shambles. SNAP stock could be in big trouble. Afterall, FB stock is down roughly 22% since earnings, and TWTR stock has plunged 35%.
Both Facebook and Twitter warned of user growth problems and fake account removal. So far, Snap hasn't had the same issues with fake accounts, but it has had trouble monetizing what user accounts it does have. If Snap follows suite and reports similar user growth warnings, it's look out below for SNAP stock.
Taking a look at the numbers, analysts are looking for a loss of 17-cents-per-share - a penny worse than year-ago results. Revenue is expected to rise 38.3% to $251.19 million. EarningsWhispers.com puts the whisper number at a loss of just 12-cents-per-share, surprisingly better than the consensus estimate.
But that's where the bullish sentiment ends. Analysts, on the whole, are quite bearish ahead of SNAP earnings. Thomson/First Call reports that only six of the 36 analysts following the shares rate them a "buy." The 12-month price target has fallen steadily this year and now rests at $11.74 - a discount to Friday's close.
While there is room for upgrades and target increases, Snap will have to provide solid quarterly numbers and guidance to get brokerage bunch bears to budge.
Short sellers are also betting big against SNAP stock. Currently, 15.79% of SNAP's float is sold short, following a 2% increase in short interest during the most recent reporting period. While there is a risk of a short-squeeze situation with this level of short interest, the risk of an upside breakout at the moment is quite low given pressures in the social media space.
All in all, negativity on an unperforming stock is to be expected. And SNAP has underperformed significantly this year. The shares have recovered a bit from last quarter's earnings drubbing, but SNAP stock has spent the past two months bouncing between support levels and resistance.
Last month's social media beatdown forced SNAP below support at $13 and its 50-day moving average. As a result, the shares are now vulnerable to additional selling pressure from technical traders.
Turning to SNAP options, the August series is pricing in a potential post-earnings move of more than 18%. This places the upper bound at $15.25 and the lower bound at $10.45.
Two Trades for SNAP Stock
Bear Put Spread: With SNAP stock trading below technical support and the social media sector in disarray, any negative guidance on user growth figures is going to hit SNAP hard. Traders looking to capitalize on a post earnings plunge might want to consider an Aug $10/$11 bear put spread.
At last check, this spread was offered at 30 cents, or $30-per-pair-of-contracts. Breakeven lies at $10.70, while a maximum profit of 70 cents, or $70-per-pair-of-contracts - a potential 133% return - is possible if SNAP stock closes at or below $10 when August options expire.
Bull Call Spread: That said, there is the unlikely possibility that SNAP stock comes out of this the only winner in the social media sector. If the company can capitalize on FB and TWTR's weakness with better guidance, it would be a major coup.
Traders looking to take a risk and bet against the bearish contingent might consider an Aug $14/$15 bull call spread. At last check, this spread was offered at 17 cents, or $17-per-pair-of-contracts. Breakeven lies at $14.17, while a maximum profit of 83 cents, or $83-per-pair-of-contracts - a potential 388% return - is possible if SNAP stock closes at or above $15 when August options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
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