Snap Stock Leaps 50% On Earnings Report – So What Next?

Buy Snap Inc Shares Your Capital Is At Risk
Tim Worstall
Updated: 4 Feb 2022

Key points:

  • Snap dropped 28% yesterday on Big Tech worries
  • Snap then reported earnings which were a big beat
  • The stock then jumped near 50% to bypass the starting price
  • How To Buy Snapchat Shares

Snap Inc (NYSE: SNAP) stock price leapt to power through and beat yesterday’s fall in that same Snap stock price. While we can all make jokes about the corporate name and snapping back this is more than just a joke. What’s happening is a sorting through of the Big Tech stock names.

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Snap’s earnings beat was impressive, with revenue up to $1.3 billion on the quarter from $911 million a year ago, earnings at 22 cents a share up from 9 cents. The implication of this being, clearly, that they’ve something of a handle on costs, marginal revenues greatly exceed marginal costs of servicing new customers or more activity by current ones. That’s one good reason for the stock price leap at Snap because of course any further growth just feeds through to the bottom line again in the same manner.

Also Read: The Best Monthly Dividend Stocks Under $10

This was also a more than 10% beat on analyst expectations of a 19 cents a share profits on $1.2 billion in revenue. So, again, this aids in explaining the jump in the stock price, cost control was better than expected as well as the raw figures themselves.

But what’s really happening here is something that happens in all-new techs and markets. At first, there’s that frenzy, when anything that looks like it might even have a chance – and an awful lot of things that don’t even have that, dotcom veterans will recall Pets.com which lasted an entire two years before crashing and burning. Then there’s the maturation phase where the bets are being placed upon which of the likely contenders will in fact succeed.

We’re at the end of that maturation phase for social media companies right now. Or at least it’s possible to say that we are, or think we are. Twitter has sorted out its ad tech and seems to be doing well enough. Facebook just had the largest corporate valuation loss of all time – over $200 billion in one day – as it became obvious that there were certain stumbles at least, if not failures, in the current business model.

So, in the lead-up to the Snap results, there was a certain fear that this could happen there as well. Perhaps the Apple changes in who gets traffic and how could affect the company as had been true at Facebook? Maybe the cool kids had just decided to go elsewhere? How much was TikTok biting into their membership base?

So, we had that 24% drop in the Snap stock price yesterday. Followed by the new information of the actual trading results which remove all that uncertainty. At which point the 50% rise (49.88% at pixel time) to take the Snap stock to $36.66 and so above the starting point.

Such wild volatility is a feature of the uncertainty which surrounds this sorting process. We are trying to work out who is going to survive, who was just a good idea which fades. We might do well to continue to expect that uncertainty and thus volatility as the process plays out.

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