Snap: In Danger of Falling to $5 - $6

An exodus in executives at Snap Inc. (NYSE: SNAP) may explain why the stock is trading well-below the $10 level and closer to its true worth of around $5 - $6. Shares are already dangerously close to the top end of my range. Selling accelerated when an analyst speculated Snap would run out of cash next year.

Fundamentally, the company made a series of mistakes that could have weakened the stickiness of its app. And the competition from Facebook (NASDAQ: FB), through Instagram’s popularity is not helping, either.

Snap lost executive Steve LaBella, its VP of Marketing. This signals weakness in the company’s plans of finally making a profit. Its latest move shows the company is in a state of panic to monetize its users. The latest product redesign was so rushed that the company earned a flurry of poor reviews and high-profile complaints from celebrities, who used Twitter to voice their dissatisfaction.

With the stock in freefall, Snap might get rumors of buyouts from Tencent (OTC: TCHEY), Amazon.com (NASDAQ: AMZN), or Alphabet (NASDAQ: GOOG). This will give the stock a temporary 10 – 15% gain, if those rumors circulate. Otherwise, the stock will continue to face panic selling.

The 15% short float is not high enough to create a short-squeeze, should the stock rally. Fundamentals support more downside risk because of the company’s low prospects for growing revenue high enough for profits.

Takeaway

Building a short or put option position on SNAP stock could prove profitable, still, despite the stock falling sharply already. Weakness in Twitter (NYSE: TWTR) and Facebook (NASDAQ: FB) stock will also help lead SNAP’s stock lower.