- Thomson Reuters
Snap has been a disappointment since its initial public offering. The IPO priced at $17 and shares opened for trading at $24. They rose to just above $27 two days later. That was the high point. Since then, shares have plunged to $14, amid a slew of downgrades. Even Morgan Stanley, the lead underwriter for Snap’s IPO, admitted it was wrong about where shares were headed.
In an August 23 note, Morgan Stanley dropped its price target to $14, saying, “We believe Snap’s core ad product is still lacking the performance (low click-through rates), measurability, and advertising return on investment to inflect ad dollar growth.” The firm had an initial price target of $28.
Aside from the downgrades, Snap was also facing the expiration of its lockup. From July 29 through August 29, a total of more than 1.2 billion shares owned by employees, directors, and insiders became available to be sold on the open market. In the middle of that period, Snap shares bottomed at $11.28 and have been in a steady climb ever since.
So where does Snap go from here? Technical analysis of the chart shows what looks like a double bottom pattern, and that could actually be good news. As you can see, in the chart below, a double bottom indicates the level at which traders are confident about buying shares. Twice since the beginning of August Snap has fallen to about $12 a share only to bounce back. Shares bottomed out over the first half of August and broke out through the neckline near $14 (marked in red dashes below). They climbed above the $15 mark before pulling back to test that neckline. That test held, setting the way for a presumed move higher. A rough measurement from the August lows to the neckline is $2, suggesting Snap shares could climb to about $16 ($14 + $2 measuring objective).
- Business Insider/Andy Kiersz/Jonathan Garber, Data from Bloomberg