Snap Inc. (SNAP) shares fell more than 3% to fresh lows after reports surfaced that it may purchase Zero Zero Robotics for $150 million to $200 million. The deal would mark a deeper move into the hardware business following the launch of Snap's video recording sunglasses – a prospect that has made many investors uneasy given the slower growth and lower margins compared with traditional software and social media businesses.
The company has already struggled to meet analyst expectations during the first quarter – its first financial results as a public company. Revenue increased 285.8% to $149.65 million – missing consensus estimates by $8.33 million – while a net loss of $2.31 per share missed consensus estimates by 32 cents per share. These problems are further compounded by the expiration of share lock-ups that could flood the market. (See also: Downward Pressure on Snap Stock Will Continue.)
On July 31, the company's lock-up period for early investors and many insiders expired, and nearly 400 million shares were eligible to be sold in the public markets. General employees will be eligible to sell an additional 850 million shares on Aug. 14 after a second blackout period expires. The increased selling pressure could suggest further downside for the stock price moving into the second half of the month. (For more, see: Snap Inc. Lockup Expires, Stock Falls 2%.)
From a technical standpoint, the stock broke down to all-time lows near S1 support at $11.87. The relative strength index (RSI) remains significantly oversold at 22.67, but the moving average convergence divergence (MACD) remains in a bearish downtrend. Traders should maintain a bearish bias on the stock given the lackluster fundamentals, lock-up period expirations and bearish technical indicators.
Traders could see a rebound from lower trendline support to the upper end of the price channel near the pivot point at $14.90 on the upside. On the downside, traders may see a breakdown from trendline and S1 support at $11.87. A further breakdown from these levels could lead shares to S2 support near $10.00, which is a key psychological support level that traders will be closely watching. (For additional reading, check out: Why Is Snap in Talks to Buy Chinese Drone Maker?)
Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.