Editor's Note

It is hard to build up any bullish momentum when analysts are downgrading the stock almost daily.



NEW BULLISH Plays

No New Bullish Plays


NEW BEARISH Plays

Snap Inc. operates as a camera company. It offers Snapchat, a camera application that helps people to communicate through short videos and images. The company also provides a suite of content tools for partners to build, edit, and publish snaps and attachments based on editorial content; and Spectacles, which are sunglasses that capture video from a human perspective. The company was formerly known as Snapchat, Inc. and changed its name to Snap Inc. in September 2016. Snap Inc. was founded in 2010 and is headquartered in Venice, California. Company description from FinViz.com.

Snap went public on March 2nd, the day after the prior market highs. Excitement was high and the stock spiked to $29.44 the day after the IPO. Since then, Snap's optimistic future has dimmed considerably. Facebook copied almost every Snap feature in an effort to keep members from straying out of the Facebook fold. It was outright war and Snap lost.

They reported their first earnings as a public company on May 10th and missed estimates and provided weak guidance. Shares fell from $23 to $18. After a couple days of dead cat bounce rebound, they returned to $22 but that is when the trouble began. Nearly every day an analyst would cut their price target and rating.

Citigroup, a previous backer of SnapChat (SNAP) has had a change of heart. On Friday, Citi downgraded the company from buy to neutral saying they are not sure when SNAP will turn profitable. They downgraded the 2018 earnings estimate from a loss of 42 cents to a loss of 46 cents. Citi said monetization was slower than previously expected because of a slower than expected rollout of new channels and opportunities. "Given issues with Android, summer seasonality, heightened competition and the nature of Snap's social network, we expect user growth to remain modest near term."

Nearly 70% of analysts have something other than a buy rating on SNAP.

The company is also facing a large lockup expiration in August. Currently SNAP has 404 million shares available to trade and on July 29th another 663 million Class A shares will be unlocked along with 281.1 million Class B shares and 215.9 million Class C shares. Those convert to Class A shares if the holders decide to sell them. Snap recently tried to get existing insider shareholders to commit to a one-year holding period but were unsuccessful. That suggests many are planning to dump shares when the lockup expires.

I am recommending a short on SNAP but I am not recommending an option. The August put premiums are too expensive.

Sell short SNAP shares, currently $18.09, initial stop loss $19.75.


Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 at the market open.