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Should You Buy Snap Stock For Under $8 After Spiegel Memo?

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Snap Inc. (SNAP - Free Report) saw its stock price sink to an all-time low Friday after reports surfaced about a company memo CEO Evan Spiegel recently sent employees. The struggling social media company’s chief executive apologized for the Snapchat redesign but said that Snap is focused on becoming profitable in 2019. Now the question is should investors think about buying SNAP for under $8 per share?

The Memo

Spiegel in a 15-page memo told employees that Snap will center its business around achieving full-year profitability in 2019. The note, first reported by the website Cheddar, also said that Snap is working on new designs for its Discover section, which is one of the main areas of the Snapchat app that the company can monetize.

The co-founder and CEO also touched on Snap’s international growth challenges and threats from social media giants such as Facebook (FB - Free Report) . “In our excitement to innovate and bring many new products into the world, we have lost the core of what made Snapchat the fastest way to communicate,” Spiegel wrote.

With that said, Spiegel mentioned that Snap has a “stretch goal” of breaking even in Q4. Yet, shares of SNAP dipped once again Friday after reports about the memo continued to circulate. 

Price Movement

Shares of SNAP have plummeted over 20% in the last month as investors fear that the social media firm faces too many challenges and too much competition. We can also see that SNAP stock has only had a few periods of positivity over the last year. Snap stock fell below $8 per share for the first time Thursday and hovered around $7.75 in afternoon trading Friday.


Overview & Outlook

Snap shares dipped Thursday after two analysts cut their price targets. Anthony DiClemente of Evercore ISI and Mark May of Citi Research lowered their price targets, citing competition, such as Instagram. “We believe that competition (particularly from Instagram) is irreversibly reducing Snap's opportunity to deliver on long-term investor expectations," DiClemente wrote in a note to clients.

Snapchat’s Daily Active Users jumped 8% to 188 million in Q2, up from 173 million in the year-ago period. This, however, marked a 2% sequential decline from the first quarter’s 191 million. On the positive side, Snap’s quarterly revenues surged 44% to reach $262 million. Its net loss also decreased 20%, but still hit $353 million.

Looking ahead, our current Zacks Consensus Estimate is calling for Snap’s Q3 revenues to soar by roughly 36%. Meanwhile, the firm’s full-year revenues are projected to reach $1.15 billion, which would mark a nearly 40% climb.           

At the opposite end of the income statement, the company is expected to report an adjusted quarterly loss of $0.14 per share. Plus, Snap is expected to post an adjusted full-year loss $0.56 per share. It is also worth noting that at the moment our estimates expect Snap to report an adjusted loss of $0.39 per share in fiscal 2019.

Snap has received a ton of positive earnings estimate revision activity for fiscal 2018 over the last 60 days and its stock price is “cheap” at the moment. But it seems like investors might want to avoid Snap stock until the company can prove it is really headed in the right direction.

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