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This is the calm before the storm. Social media company Snap (NYSE:SNAP) is set to report highly anticipated second-quarter numbers after the bell on Tuesday, Aug. 7. Over the past few months, SNAP stock has traded largely sideways, bouncing around $13 for most of June and July.
But don’t be fooled. This is just the calm before the storm that will ensue after Snap reports second-quarter earnings.
Those earnings will create a storm because of what, or rather who, Snap is following. Peer social media companies Facebook (NASDAQ:FB) and Twitter (NYSE:TWTR) both reported disappointing second-quarter numbers recently, and both stocks dropped 20% in response to those reports.
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Thus, precedent says that Snap, too, will report ugly numbers and that SNAP stock will drop like a rock. But if Snap manages to buck the trend and report strong numbers, SNAP stock could soar because adverse digital advertising sentiment has kept this stock from rallying recently.
All together, Snap’s Q2 earnings promise to be an event wherein SNAP stock either drops big or rallies big.
Which of those outcomes is more likely?
I think SNAP stock drops big after earnings. But I also think that, as has been the case with almost every other big post-earnings dip in SNAP stock, that dip will be a solid buying opportunity.
Here’s a deeper look.
Don’t Expect Big Numbers From Snap
I really don’t think there is any way that, in the same quarter in which Facebook and Twitter reported bad numbers, Snap turns around and reports a good quarter.
These guys all operate in the same space. Thus, the same user, revenue and margin growth concerns that are presently hitting Facebook and Twitter are likely also hitting Snap. The one exception here is if Snap is actually stealing users and revenue market share from Facebook and Twitter, then its growth will look very different than Facebook and Twitter’s growth.
I don’t think that’s the case.
From a ground-level perspective, my observation is that Instagram Stories usage has only grown exponentially over the past several months, while Snapchat Stories usage has actually dropped. Search interest and app ranking data seems to support this observation. The divergence between search interest in “Instagram” and search interest in “Snapchat” has only grown wider over the past several months, with Instagram search interest gaining ground and Snapchat search interest losing ground.