Speculating On SNAP

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Former social media app darling Snapchat (SNAP) has been left for dead – and rightfully so. Revenue growth fell off a cliff in its disastrous 2Q22 to just +13% and Adjusted EBITDA was essentially breakeven at $7 million. SNAP wouldn’t even provide guidance for 3Q22 leaving investors in the dark. This is somewhat of a scary situation to wade into but I like the risk/reward.

As mentioned in the above linked blog SNAP’s Daily Active Users (DAUs) are still growing nicely as the app seems to be extremely popular among young people. Their problem is monetizing their users via advertising. In this context it’s worth mentioning that Facebook (META) had the same problem early in its career as a public company epitomized by a Barron’s cover story saying the stock was only worth $15. (It had went public for $38 earlier that year). Obviously they eventually figured it out and I think it’s probable that SNAP will as well given its popularity among the younger generations.

It’s always risky to speculate on earnings but I’m a believer in SNAP long term and the stock has been left for dead. Any signs of life in its 3Q22 earnings report after the close today could result in a huge relief rally. I’m playing this via stock and Oct21 $12.50 calls which can be had for around 50 cents.

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