Stock Story -
What Happened: Shares of social network Snapchat (NYSE: SNAP) fell 9.2% in the pre-market session after markets continued to decline, although they have recovered a bit since the open (Nasdaq down 3.6%, S&P 500 down 3%). Yields also retreated as worries about a US recession grew. The declines followed volatility on Friday, August 2, when the July Non-Farm Payrolls data revealed weaker job growth as the unemployment rate rose.
Markets might also be concerned that the Fed is behind in cutting rates, with the Federal Open Market Committee leaving rates steady at 5.25%-5.50% during the July 2024 meeting. For example, respected economist and University of Pennsylvania professor Jeremy Siegel took an aggressive stance, calling on the Fed to make an emergency 75 basis-point cut in the federal funds rate after Friday’s disappointing jobs report.
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. However, the economy matters as well. Recessions can mean broad-based declines in demand for everything from consumer goods to enterprise software.
We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Snap? Find out by reading the original article on StockStory, it's free.
What is the market telling us: Snap (NYSE:SNAP)'s shares are very volatile and over the last year have had 16 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 3 days ago, when the stock dropped 24.7% on the news that the company reported second-quarter earnings results. Its revenue unfortunately missed analysts' expectations, and its revenue guidance for the next quarter came in slightly below Wall Street's estimates. Adding to the negativity was the fact that adjusted EBITDA guidance for the next quarter was significantly below. Overall, this quarter could have been better.
Snap is down 44.9% since the beginning of the year, and at $8.86 per share it is trading 49.3% below its 52-week high of $17.45 from February 2024. Investors who bought $1,000 worth of Snap's shares 5 years ago would now be looking at an investment worth $540.
