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Aug 9, 2017

'Getting interesting': Snap shares rally ahead of quarterly results

A woman stands in front of the logo of Snap Inc. on the floor of the New York Stock Exchange in New York City

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SAN FRANCISCO/NEW YORK -- Shares of Snap Inc (SNAP.N) rallied on Wednesday as options traders buckled in for the social media company's quarterly results and after an analyst said the beaten-down stock was "getting interesting."

Shares of Snap, owner of the popular messaging app Snapchat, have been punished by investor concerns about user growth and waning confidence in the company's ability to ever turn a profit. The shares are down 50 per cent from the record high reached shortly after Snap's market debut in early March.

Shares of Snap closed up 4.15 per cent at US$13.56 on Wednesday, still well below the US$17 price in the initial public offering, the third-largest IPO for a U.S. technology company. The company is set to report quarterly results after the market close on Thursday.

Recent options transactions imply traders expect a 15 per cent one-day swing for the stock in either direction following the quarterly results.

Opening the door to more volatility, Snap employees on Monday will be permitted to sell shares for the first time since the IPO, in the second expiration of restrictions on sales by certain shareholders. Restrictions on stock sales by early investors in Snap expired on July 29.

Snap has been a favourite of short sellers — who bet that a stock will fall — and the expiration of the lockup last month increased the number of shares available for trade.



Traders are now paying an annualized interest rate of 3.5 per cent to borrow Snap shares in order to short them far less than rates over 70 per cent ahead of that lockup expiry, according to S3 Partners, a financial analytics firm. Short bets have increased to 70 million shares from 67 million at the end of July.

Snap's chief executive, Evan Spiegel, and co-founder Robert Murphy each own 211 million shares and are the company's two largest shareholders. Some investors believe that on an analyst conference call following the quarterly report, Spiegel may reassure investors that he has no immediate plans to sell.

"People would be encouraged by that, inside and outside the company," CFRA analyst Scott Kessler said in a recent interview.

On May 11, shares plunged 21 per cent after Snap, in its first quarterly report as a public company, released results that missed some Wall Street estimates.

FBN Securities analyst Shebly Seyrafi on Wednesday cut his price target for Snap's stock to US$17 from US$21, and wrote that at current levels Snap is "getting interesting" and could become an acquisition target for Facebook Inc (FB.O).

For the quarter ending in June, analysts on average expect US$187 million in revenue and an adjusted loss of 14 cents US per share, according to Thomson Reuters data. On a GAAP basis, Snap is expected to post a loss of US$359 million.