Tech bulls target new name
05/05/17

Out with the old, in with the new? That’s the question traders seem to be asking when it comes to social-media stocks.

Sure, for many traders Facebook (NASDAQ: FB) is the 800-pound gorilla in the room. It’s the third-busiest website in the world and the fourth-biggest company in the S&P 500 by market capitalization. It’s also a mainstay for options traders, routinely ranking among the busiest names in terms of average contracts per session.1

But this week, attention is turning to a player that’s so new it hasn’t even reported earnings as a public company: Snap (NASDAQ: SNAP), the parent of instant-messaging and video upstart Snapchat. The options activity began in earnest on Wednesday, when 5,700 of SNAP’s May 23 calls were purchased for $1.10. Buyers came right back yesterday and vacuumed up another 9,100 of the 26-May 27.50 calls for $0.45.

Calls fix the price where investors can buy a security, which creates the potential for leverage if a rally occurs. Take those May 23s: They’ll double in value if SNAP climbs another 10 percent to $25.20, and triple from a 16 percent move to $26.30. But if the stock fails to advance enough or drops, the entire premium will be wiped out quicker than a disappearing instant message.

SNAP ended the session up 3.53 percent to $22.59. It only went public in March and now the market is getting ready for its first set of quarterly numbers after the closing bell next Wednesday, May 10. Experts from Silicon Valley to Wall Street are starting to buzz with hopes it will emerge as the next monster growth stock in the industry. Consider these headlines:

  • Yesterday, they rolled out Snapchat Ad Manager, making it easier for marketing people to fork over their dollars. That puts a target on the backs of bigger players like FB and Google.2
  • SNAP is working with big media providers like NBCUniversal and ESPN to create new television-like content.3
  • Bill Ford, founder and CEO of investment fund General Atlantic sees SNAP becoming a major presence in the space.4
  • Some recent research shows two potentially noteworthy things about SNAP’s audience. First, users are different than FB’s and potentially more loyal.5 Second, it's making headway beyond the initial teen demographic to older users.6

It’s also interesting that the call buying occurred in the sessions immediately before and after FB reported earnings. Mark Zuckerberg’s empire may have beaten estimates on the top and bottom lines. It may have registered yet-another double-digit increase for users and ad pricing. And, once again, Wall Street analysts may have gushed enthusiastically and scrambled to raise their target prices.7

But at the end of the day, FB closed marginally lower after admitting its growth is slowing.8 After all, it’s 13 years old while SNAP is only five. 

Bottom line: Tech traders tend to love the newest thing, and recent activity suggests attention is now turning to SNAP.

 

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1. Web traffic data based on Alexa Rankings. Market capitalization based on Google Finance. Options volumes based on WEX Trading Platform..

2. Wall Street Journal: Snap Casts Wider Net for Advertisers With New Self Service Tool. 5/4/17. Business Insider: Snapchat's new ad format akin to takeovers. 5/4/17.

3. Wall Street Journal: Media Companies Line Up to Make Shows for Snap TV. 5/4/17.

4. CNBC: Snap will be a serious competitor to Facebook and Google, says investor. 5/3/17.

5. Mashable: Snap may finally have a good answer to the Facebook question. 5/4/17.

6. CNBC: Older people are starting to use Snapchat more, new survey shows. 4/17/17.

7. Investor's Business Daily: Facebook Applauded By Analysts Following A Strong Earnings Report. 5/4/17. CNBC: Wall Street loves Facebook and raises price targets after earnings — research wrap. 5/4/17.

8. Barron's: Facebook Falls as It Reiterates Ad Slowdown. 5/3/17.