This Social Media Stock Just Had a Monster Volume Day

This Social Media Stock Just Had a Monster Volume Day

Suddenly, it seems a new tech stock has arrived.

Social media upstart Snap (SNAP), the mobile-centric parent of Snapchat, just proved it’s a real player with stunning user growth. That fueled a monster rally on Wednesday to the stock’s highest level in over a year.

There were other superlatives. Options volume set a record at almost 743,000 contracts, putting it ahead of even Facebook (FB) and Apple (AAPL). It was also the busiest stock for TradeStation clients in the session, compared with 28th during the earlier part of July.

Daily active users (DUA) rose 6.8 percent to 203 million in the second quarter, blitzing past estimates for 192 million. Revenue guidance was higher than expected. Average revenue per user (ARPU) surprised to the upside. Its quarterly loss was much narrower than forecast and gross margin widened from 30 percent to 46 percent.

Snap (SNAP) chart with select indicators.
Snap (SNAP) chart with select indicators.

The photo-sharing service is benefiting from technological innovation as a new gaming platform and redesigned Android app drive engagement. Several analysts spotted this turnaround over the course of 2019, starting with Citi in January. Quarterly results beat estimates the following month and again in April.

Outpacing Rivals

SNAP has more than tripled this year. Rival Facebook (FB), which reported decent numbers last night, is up 54 percent in the same period. Twitter (TWTR), due tomorrow morning, has climbed 34 percent.

Some investors may think SNAP is cheaper than its rivals as well. Consider these valuations comparing market capitalization to DAUs:

  • SNAP: 203 million users / $23.8 billion of market cap = $117 per user.
  • FB: 1.59 billion users / $583 billion of market cap = $367 per user.
  • TWTR: 134 million / $29.8 billion of market cap = $222 per user.

News that the Justice Department is probing FB for potentially monopolistic behaviors could also impact the social-media space in coming quarters. We still don’t know the importance of this latest news, but it’s less likely to hurt smaller firms.

In conclusion, SNAP is still a small player that struggled for almost two years after going public. But this week’s earnings report, and the market’s enthusiastic response, seems to show that it’s finally getting some respect.

TradeStation Hotlist showing SNAP's options volume on July 24.
TradeStation Hotlist showing SNAP’s options volume on July 24.
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