Snap’s Q2 Earnings: a Lesson for Millennials

Snap's Q2 Earnings (NYSE:SNAP) is trading at all-time lows following the company's second quarter earnings report. The parent company of Snapchat, Snap Inc, priced its IPO at $17 per share on March 2 of this year. Within one day, shares of the company reached $29.44 per share. Immediately after Snap went public, The Stock Trader Blog issued a sell rating on the stock in an article on Snap's financial position. So far, our bearish opinion on Snap stock has returned 53.48%.


 

Why Millennials Bought Snap Stock

As one of the most anticipated tech IPO's of 2017, millennial "investors" (speculators) gave Snap stock a optimistic reception. Despite the ludicrous reactions to our skepticism of the stock, millennials bought Snap in droves. The logic behind this phenomenon, albeit faulty, was a popular company interconnected with the daily lives of younger generations could only grow. Thereafter, Snap would experience tremendous revenue growth. Ultimately, the company would become profitable and begin returning capital to shareholders.

At first glance, the case for Snap stock appears rational. After all, everyone I know uses Snapchat each day. Some of my friends use the popular smartphone app every other hour. Furthermore, Snapchat is not necessarily a fad. This social media platform continues to experience user growth and is used by a wide range of people much like Twitter (NYSE:TWTR).

Snap's Q2 Earnings: Tremendous Losses for Millennials

After second quarter earnings, Snap took a 12% nosedive upon market open. The Q2 earnings report missed on both revenue and EPS expectations. As reported by Reuters, consensus estimates were adjusted EPS of $ -.14 per share on revenue of $186.2 million. However, the company reported adjusted EPS of $ -.16 per share on revenue of $181.7 million. Furthermore, analysts expected Snap to add 8 million daily users for Q2. Yet, Snap acquired only 7 million daily users in the second quarter.

So, just how many millennials had exposure to the stock? According to CNBC, 43% of Snapchat's users bought Snap stock. Realistically, this statistic is much larger when Snapchat users without the capacity (due to age, income, or other lack of accessibility) to purchase stocks are excluded. In addition, more than 40% of Robinhood users who placed trades on March 2 bought Snap stock. You can read this NY Post article about millennials buying Snap to see just how many of them bought it as their first "investment."

Stock Rating Following Snap's Q2 Earnings

In the end, Snap's IPO was nearly identical to many of the other over-anticipated tech offerings. The Stock Trader Blog's initial sell rating on Snap stock included a $15 price target (when shares traded at $27). Going forward, we believe the risk:reward function in a short position on Snap stock accurately reflects reality and no longer offers much upside. Due to the massive price correction, we are neutralizing our sell rating on Snap stock by issuing a market perform rating on the company. For now, we close out the short position and move on to the next mis-priced stocks.







Eric Bruin

Eric Bruin

Founder. Kelley School of Business ’17. Write about stocks and business news. Contact for business inquiries or to write articles for The Stock Trader Blog.

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