Snap Inc. (SNAP) shares fell more than 7% on Monday afternoon after analysts weighed in on the company's move to cut another 100 employees in the advertising division. The move follows layoffs of over 120 engineers early last month in the engineering and content divisions. While some analysts had argued that the headcount was bloated at about 3,000 employees, the cuts could foreshadow cash flow problems.
CEO Evan Spiegel argued that the company was aggressively aiming toward a breakeven point, but analysts aren't convinced that the goal is obtainable in the short term. While financial discipline is important, SunTrust Robinson Humphrey analysts said that it cannot come at the expense of innovation, especially for a company that is facing threats from Facebook, Inc. (FB). Pivotal analysts also cut their price target on Snap shares to $9.00 following a reassessment of the space. (See also: Snap to Lay Off 10% of Its Engineers: Reports.)
From a technical standpoint, Snap stock broke down from key trendline support and the 200-day moving average at around $15.22 to S1 support at around $14.78. The relative strength index (RSI) fell near oversold levels at 31.86, but the moving average convergence divergence (MACD) has remained in a bearish downtrend since late February. These indicators suggest that the company is likely to continue to decline over the near to intermediate term.
Traders should watch for a breakdown from S1 support to S2 support at around $13.68 or a move to retest prior lows from late last year at around $12.50. If the stock rebounds back above trendline resistance and the 200-day moving average, traders should watch for a move to retest trendline resistance at $16.00. The next major catalyst for the stock price may be May 9, when the company is slated to report its quarterly earnings.
Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.