Snap stock has slumped into a local bear market after falling by over 20% from its highest point in October this year. It dropped to $5.45, its lowest level in a month, with focus being on the upcoming earnings report on Wednesday.
Options market points to high volatility as its earnings loom
Snap, a top player in the social media industry, is expected to be highly volatile this week as it publishes its financial results. Just last week, Reddit stock droppedby over 25% after publishing its numbers, which showed that its Google search traffic had plunged.
The options market suggests that the company’s implied volatility has jumped to 162%, much higher than the historical average is 53.8%. Its implied volatility is a figure that looks at how much an asset’s price is expected to move and is usually derived from the current price of options.
A look at the options chain shows that most call options are concentrated at $6, which is a few points above the current level. On top of this, there is a significant number of call options that are concentrated up to $7.50. A move to $7.50 would suggest a 38% surge from the current level. On the other hand, most put options are concentrated at $4 and $5.
Analysts expect Snap’s revenue to have modest growth
The upcoming earnings report is expected to show that Snap’s business did relatively well in the third quarter. Yahoo Finance data shows that the average estimate is that its revenue rose by 14.7% to $1.73 billion, helped by its advertising business.
Analysts also expect the annual revenue to come in at $6.8 billion, up by 14.8% from what it made last year.
The most recent results showed that Snap’s business did well in the second quarter, with its revenue rising by 19% to $1.6 billion in the second quarter. The average revenue per user rose to $3.25 from the previous $2.87.
The company’s net loss also narrowed to $164 million, much better than $263 million in the same period last year. This growth happened as the number of monthly active users rose to 971 million from 932 million in the same period last year.
The challenge, however, is that Snap’s business is growing in the “wrong” areas. For example, its daily active users in the United States dropped to 92 million from 98 million, while in Europe, it fell to 98 million from 100 million. The rest of the world grew to 303 million from 271 million.
These are important developments because the average revenue per user in the United States is $10, while the Rest of the world is just $1.
Snap stock price technical analysis
Snap stock chart | Source: TradingView
The daily chart shows that the Snap stock price has pulled back in the past few weeks, moving from a high of $6.85 in October to the current $5.4. It has dropped below the 38.2% Fibonacci Retracement level.
The stock has also dropped below the lower side of the ascending channel and the 50-day Exponential Moving Average (EMA). It has also moved below the Supertrend indicator.
Therefore, the stock will likely continue falling, potentially to the 61.8% Fibonacci Retracement level of $5. A move above the key resistance level of $6 will invalidate the bearish outlook.
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