Snap made a spectacular stock market debut on March 2, 2017. At USD 24, the initial share price exceeded the IPO price by more than 40%. At that time, the parent company of the photo app Snapchat had a capitalization of around USD 30 billion. In September 2021, the share price reached an all-time high of USD 83.33 and the market value peaked at USD 116 billion. On the 7th anniversary of its IPO, the social media stock is trading more than a third below its IPO price. Until recently, it looked as if Snap could turn upwards from a bottoming out. However, the Californians caused a shock at the beginning of February.
Snap reported revenue growth of 5% to USD 1.36 billion for Q4 2023. Although the social media company only missed analysts' expectations by just under USD 20 million, it was still brutally punished on Wall Street. Within one day, the share price plummeted by almost 35%. The faltering growth - revenue stagnated in 2023 as a whole - reinforces a fear among investors: competitors now often offer similar photo functions to Snapchat. In this respect, advertisers could give preference to other applications. It is fitting that Meta Platforms, the holding company behind Facebook and Instagram, has reported advertising revenue growth of 25% for the fourth quarter of 2023.
However, CEO and Snap co-founder Evan Spiegel will certainly not leave the field without a fight. He is firmly convinced of the potential for further growth. "Of course we would like to be faster, but we are working as hard as we can," Spiegel said at an analyst conference. Reach should not be a problem. In the fourth quarter of 2024, an average of 414 million users were active on Snapchat per day. Analysts had only expected 411.6 million. The app is particularly popular with young people. In more than 25 countries, the app known for its special and funny picture messages reaches 90% of 13 to 24-year-olds. In 2024, the CEO wants to further expand the user base and invest in markets where Snap already earns the most money. These include North America and Europe. Recently, however, the community on these two continents has hardly expanded at all. Growth came from other regions (see chart).
Many hedge fund managers have probably already outgrown the Snapchat community. And yet one or two investment professionals are still taking a liking to the stock. Goldman Sachs took a close look at the portfolio movements of more than 700 hedge funds. This revealed that positions in Snap were built up in the fourth quarter - i.e. before the latest figures were published. Meanwhile, managers turned away from the "Magnificent 7". With Apple, Microsoft, Nvidia, Alphabet, Meta Platforms and Tesla, six stocks from this group recorded net sales. The only exception was Amazon. The "Magnificent 7" played a major role in the recent Wall Street rally. The concentration of the US market on these growth stocks is now correspondingly high.
With a market capitalization of around USD 17 billion, Snap is tiny compared to the "Magnificent 7". Despite this, the share makes "glorious" coupons possible as an underlying for barrier reverse convertibles (BRCs). Leonteq has launched two variants on Snap. In the product currency CHF, the guaranteed distribution is 17% p.a. The USD variant even pays a coupon of 21% p.a. Irrespective of the value date, the barrier is a low 49% of the initial level. Snap would therefore have to fall by a good half or fall out of the overriding sideways trend for the partial protection to expire. Should this worst-case scenario occur, the BRC would be exposed to the full risk of the underlying. Please also note the softcallable function. It makes early termination and redemption possible. The issuer of the BRCs is Basler Kantonalbank - its strong rating (Fitch AAA, S&P AA+) gives the products presented a particularly solid foundation.
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