Snap Inc. simply describes itself as a camera company. The company was founded by Evan Spiegel and Bobby Murphy on September 16th, 2011 and it is headquartered in Santa Monica, California, USA. Snap’s flagship product is the iconic social media app, Snapchat, but the company also develops and maintains Spectacles (smart glasses that record Snapchat videos) as well as Bitmoji (a personal emoji creator app). The inspiration for forming the original Snapchat company came from the need to create attractive, beautiful and cool disappearing photos. The founders imagined that people would take photos differently and confidently if things on the internet were not permanent. Snapchat took off to an impressive start and immediately appealed to the lucrative younger generation demographic that is constantly online and by all means, hard to impress. Students particularly liked the idea of texting during classes with no evidence available. By April 2012, the app had registered 100,000 users; and by the end of that year, the company introduced video snaps that fuelled their success further.
By May 2013, 150 million snaps were being sent daily, and by the end of that year, the company reportedly rejected a buyout offer from Facebook worth $3 billion. The rejected Facebook offer opened a battle between the two companies that eventually shaped and dictated the fate of Snapchat. Facebook later incorporated Snapchat features on its Instagram and WhatsApp applications, and it took a real assault on a company it would otherwise have bought earlier. Snapchat’s resilience continued, and in 2016 it was reported that Google offered to buy the company for $30 billion, an offer that would be rejected again.
In the same year, Snapchat rebranded to Snap Inc., and the company went public on March 2nd, 2017, with a valuation of between $25-$30 billion. The stock is listed on the NYSE, where it trades under the ticker symbol SNAP. It falls under the Communication Services sector, under the Internet Content & Information industry. Snap Inc. has maintained an active portfolio in an industry where it has faced severe threats. The company has acquired over 15 companies in its short history. Its most significant deals include the 2020 $166 million acquisition of AI Factory, a developer of unique Computer Vision and AR products; the $200 million buyout of Zenly in 2017, a company that creates social maps; and the 2017 $135 million acquisition of Placed, an ad-tracking attribution platform.
Snap Stock History
The Snap stock launched with a price of $17 on its IPO date. The stock quickly jumped to $24 on its second trading day, valuing the company upwards of $33 billion. The company has never had a stock split in its history (as of October 2020). The initial pump proved to be a smokescreen, and the stock quickly entered a downtrend that sent it to lows of circa $10 by August 2017. A brief rally resumed and printed a temporary high at just above $20 by February 2018. A strong downtrend then followed that sent the stock to its all-time low of just below $5 by December 2018. The stock then embarked on a gradual rally that topped out at circa $20 in January 2020. A brief retrace sent the stock to lows of circa $10 by March 2020, before strong tailwinds propelled Snap to its all-time high of just above $28 in October 2020.
The 2020 rally was fuelled by an increase in social media usage as the coronavirus pandemic kept people at home. Another major fundamental factor was the worry of a potential ban in the US of an emerging major competitor, TikTok. Snap has proved to be a resilient company and important improvements in its major product, Snapchat, as well as strategic diversification through mergers and acquisitions, ensure that investors will always place a keen eye on the Snap stock. Snap Inc. has never paid a dividend, and investors do not expect a change in that regard anytime soon. The company has had to navigate a tricky business environment, and investors will hope that their patience will pay off from higher stock valuations in the future.
How to Trade Snap Stock
Here are the factors to consider when trading the Snap stock:
The social media industry has been a target for legislation, particularly around the issue of data privacy. There have been aggressive laws instituted by governments across the world that limit how major social media companies, such as Snap, interact with the data of their consumers. Making changes to comply with such legislation can come with high costs, or the companies may incur expensive fines.
New Product Rollout
Snap’s early success was the result of innovative products, such as stories and disappearing pictures. In the few years that Snap has existed, it has lagged behind mainly because it has failed to quickly innovate or create new captivating products for its digital audience. In the social media industry, hit products can gain traction quickly and trigger higher prices, whereas misses can inspire lower stock prices.
Negative PR and Lawsuits
Snap has had its fair share of headlines that have damaged its public image. In 2017, the company was the subject of a controversial lawsuit by Reggie Brown, who claimed that he was a co-founder that was short-changed when the company was starting out. Also, in 2018, there was a public outcry when the Snapchat app was redesigned. Investors hate negative headlines that can be particularly damaging to a stock.
Snap has faced fierce competition since inception. It is rivals with both new and experienced companies such as Facebook, Instagram, WhatsApp, Twitch, TikTok and Twitter. In some instances, the growth of competitor companies can signal weakness in Snap’s business, and this could inspire lower stock prices.
Snap Inc.’s fiscal year runs from January to December, and the company releases periodic earnings reports that keep investors updated on their business health and performance. It is important to track the release of earnings reports because positive numbers inspire higher stock prices, whereas negative figures usually trigger lower stock prices.
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Snapchat Stock FAQ
- Why should I trade Snapchat shares?
Snapchat is a social media company that operates several websites and smart phone apps that allow users to share content via short videos. It’s a huge growth area and traders have profited from Snapchat since its IPO less than four years ago. With plenty of volatility in the space and in the stock, it can be a good stock to watch, and a good stock to consider for potentially good trade setups. As smart phone usage grows and 5G allows for more bandwidth for users Snapchat can be expected to benefit greatly in the coming years. That makes the stock even more interesting as a growth story and as a trading opportunity.
- Is Snapchat the best social media stock for trading?
Social media stocks are well known for their volatility, and Snapchat is no exception to this. Double digit percentage moves are not unusual in this stock, especially around earnings releases, and many traders can build entire strategies around trading social media shares around their earnings releases. As one of the newer, and fastest growing social media companies Snapchat is considered an excellent way to play these types of strategies. It may not be the best social media stock for this type of trading due to the unpredictable nature of its earnings and growth, but it can certainly be considered an excellent choice for traders looking for a volatile stock prone to making large moves.
- What’s the best strategy for trading Snapchat shares?
As a stock with a tendency to make large moves in response to earnings releases a good strategy is to trade Snapchat shares around earnings releases. Option straddle strategies are one of the best ways to do this given the possibility for a large move in either direction for the stock following its earnings releases. Traders could also take advantage of a strategy that indentifies breakout moves, as trends in the stock can be started by surprise earnings releases. Due to the volatile nature of the stock risk management techniques are critically important as a consideration whenever trading in Snapchat.