Has Snap Inc Bottomed Before the Lock-up Expires?


Snapchat stock Snap Inc (NYSE: SNAP) had a hotly anticipated $3.4 billion March IPO that helped to awaken astruggling U.S. IPO market withshares rising 44% on their first day of trading as more than the entire 200 million-share offering changed hands within the first day. However and since then, Snap Inc has struggled with shares near all time lows as analyst question the Companys business model, numbers and valuation.


There could be further risk or opportunity on the horizon later this summer. According to JPMorgan (one of the IPO underwriters), an additional 1.2 billion Snap Incshares, or 84% of the company’s shares outstanding, could flood the market when the company’s lock-up period expires from July 31 to August 31. When that happened to Twitter Inc (NYSE: TWTR), shares fell 18% to what was then an all-time low; but in the case of Facebook Inc (NASDAQ: FB), shares actuallyjumped 11%.


Yesterday, our Elite Opportunity Pro (EOP) portfolio newsletter suggested a highly speculative entry into Snap Inc by first saying:

Everyone here knows we’ve purposely stayed away from Snap, Inc. (SNAP) ever since the social media phenomenon went public back in March. However, the stock is starting to look technically interesting for a potentially profitable bullish trade.

The Finviz chart shows a bit of what we are talking about as the downtrending lines ease a bit:


Although we’re not huge fundamental fans of SNAP yet, one can’t ignore two things – the Company’s $3.2B cash position, and its ongoing love affair it continues to have with the entire millennial generation, something that’s nothing short of a major cult like obsession for everyone from the age of 12 to about 35

More importantly, most of you know how much we love new lows with IPO’s, and yesterday SNAP did just that. As you can see in the daily chart of the stock below, the stock took out a new all-time low yesterday, only to snap back – no pun intended. Now, we’d expect some follow through to the upside.


And:

No guarantee, however, if what we’ve seen so many times with IPO’s like this ends up repeating itself, we could be looking at a reversal in the stock. It’s not to say it’s definitely bottomed for good, but we’ve seen this type of reversal so many times off new lows with IPO’s.

The bottom line is if SNAP can pick up steam to the upside now, we’re likely looking at a move to at least $20 and change, and potentially even $24, which represents a key long-term retracement level back to the upside

Although it has yet to prove a bottom for sure, the risk/reward here looks pretty good, so we’re willing to take a shot in the idea, and it’s entirely possible the stock could end up being gift from current levels at some point down the road.

It should be noted that Bloomberg recently reported that Snap Inc is the most-shorted tech IPO of the year with short interest up to 28% of the free float meaning unexpected good news could trigger a short squeeze.

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