Snap stock price rose by over 6% in the pre-market session as investors cheered the Snap OS 2.0 and its Spectacles, as it leans towards augmented reality (AR). It jumped to a high of $8.7, its highest level since August 5, and 25% above the lowest level this year.
Why the Snap stock price is soaring
Snap share price has rebounded after it launched the Snap OS last week. This upgrade, together with the update on the Spectacles, will bring more features to the platform.
Snap has updated the Spectacles Browser, making it faster, more powerful, and easier to use. The browser also supports WebXR, opening the door for immersive augmented reality.
Snap also unveiled the new dedicated Spotlight Lens, and launched the Lenses Galore.
Therefore, investors are buying the Snap stock because it is building an ecosystem that leans towards AR and WebXR.
Read more: Snap stock price forecast: is it safe to buy the dip or sell the rip?
Risks to the thesis
The ongoing Snap stock price surge has major risks ahead. The first one is that Snap’s previous entry into the AR industry got mixed reactions from investors and users and the products did not contribute substantially to its revenue and profitability growth.
Further, there are lingering concerns about the future of the AR industry and whether it will keep growing in the future.
Most importantly, the company’s business is still slowing as competition from other social media companies continue soaring.
The most recent results showed that Snap’s revenue rose by just 9% to $1.3 billion, while its operating loss jumped to $259 million. This led to a major downgrade from Citizens Bank.
In contrast, Meta Platforms, which owns brands like Facebook, WhatsApp, and WhatsApp, grew by 22% in the same quarter.
While Snap is still a popular app, most of its users are now focusing on TikTok, a platform whose monthly users has jumped to 1.6 billion, with the US being the biggest market with 135 million users.
Analysts expect that Snap’s revenue growth will be slower in the future as companies focus on other growing social media platforms.
The average revenue estimate for the current quarter is $1.49 billion, a 8.7% increase from the same period last year. The annual revenue growth will be 9.88% to $5.89 billion, followed by $6.5 billion next year.
Read more: Top 3 reasons why SNAP stock isn’t an attractive takeover target
Snap share price technical analysis
Snap stock chart | Source: TradingView
Meanwhile, the Snap stock price rebounded after forming a double-bottom pattern on the daily chart. The double-bottom was at $7, while the neckline was at $10.39, its highest level in July.
A double-bottom pattern is one of the most common bullish reversal chart patterns in technical analysis.
Most notably, the stock also formed an island reversal pattern, which happens after it forms a major down-gap. This pattern often leads to a bullish reversal.
Therefore, the most likely scenario is where the stock rebounds and retests the double-bottom’s neckline at $10.40, up by about 20% above the current level.
A drop below the support at the double-bottom point at $7 will invalidate the bullish outlook. This crash will likely happen after the company publishes its next earnings report.
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