Snap stock price loses key support as North America user growth fades

The Snap stock price crashed to a record low and flipped a crucial support level for the first time ever. It dropped to an all-time low of $5.9 after the company published its financial results and launched a large share buyback, a sign that the management expects it to rebound.

Snap launches a share buyback as revenue growth continues

Snap, the parent company of Snapchat, published relatively strong financial results, even as competition in the industry rose. Competition has jumped from companies like Instagram and TikTok.

The company’s revenue jumped by 10% in the fourth quarter to $1.76 billion, a trend that may continue rising in the coming years. This revenue growth happened as its in-app optimization revenue jumped by 89%. Dynamic product ads rose by 19%.

The performance brought its annual revenue to $5.9 billion and its net loss to $460 million, an improvement from the previous $698 million.

Most importantly, the company’s efforts to ensure profitable growth continued to pay off, with its gross margin rising from 57% to 59%. Consequently, its net income jumped to $45 million from $9 million a year earlier. 

Snap’s main challenge, however, is that its users in the most important North American segment continued to slow. It ended the quarter with 474 million daily active users to 474 million, down from 477 million in the third quarter. 

Snap’s North American users dropped to 94 million from 98 million in the third quarter, a trend that will continue. The same is happening in Europe, where users dropped to 98 million, down from 100 million in Q3.

This slowdown is being offset by the increase in the rest of the world, where users rose to 282 million, up from 280 million.

This trajectory is important as the North American and European segments are its most profitable. Its North American business made $1.02 billion in revenue, while Europe made $343 million. The rest of the world business made $350 million. 

Therefore, investors are concerned that the falling users in North America will ultimately hit its business. This trajectory explains why analysts expect that its business will continue slowing in the next few years unless it launches new popular solutions.

Snap stock price technical analysis 

The weekly timeframe chart shows how the Snap stock price has collapsed in the past few years as it moved from a high of $83 in September 2021 to the current $5.91m this drop has led to a big wipeout, with its market capitalization falling from $160 billion to the current $9 billion.

Snap attempted to recover in 2023 and found substantial resistance at $17.76, its highest level in December of that year. Since then, it has resisted moving below the key support level at $7, its lowest level in October 2022 and April, August, and December last year.

It has now succeeded in moving below that support level, confirming that bears have prevailed. This support was the neckline of the head-and-shoulders chart pattern.

The stock remains below the 50-week and 100-week Exponential Moving Averages (EMA), while the Relative Strength Index (RSI) has continued moving downwards.

Therefore, the most likely scenario is where it continues falling, with the next key target level being at $5.0. A move below that support will point to more downside, potentially to $4, with Snap effectively becoming a penny stock.