Earnings season has pretty much been a non-event this year, with investors entirely focused on the election and the COVID-19 pandemic. The week leading up to the election has been extremely volatile, and you could indeed be forgiven for not realizing earnings are still rolling out.
Snap (SNAP)
The thing is, what may have been overlooked with everything going on is just how incredible Snap (SNAP) earnings were. Sure, the stock has soared higher and is up 162% year-to-date. Yet, the share price move may actually be understating just how good the numbers are.
It's also worth noting that while much of the rest of the market was experiencing sharp selling, the SNAP share price hardly budged after its huge earnings gap up. If it was fated to be a short-lived spike, the gains likely would have been given up during the broad market selloff.
In the midst of a serious economic downturn (due to COVID), SNAP is experiencing massive growth. Sure, as a video-sharing social media company, Snap is well-positioned to thrive in a remote work/study environment. Nevertheless, the company's 249 million daily active users are impressive. Plus, it was a full 6 million more than analysts expected.
SNAP reported third-quarter revenues of $678 million, a massive beat over the expected $550 million. What’s more, the company expects revenue growth of upwards of 50% for the fourth quarter. That’s nearly $100 million more than analysts’ expectations.
While Snapchat is the company's flagship video chat product, it also provides a multiplayer gaming platform, original shows for users, and original content. In other words, SNAP doesn't appear to be a one-trick pony and is building for the future.
So what does the options market think?
At least one trader believes the good times will continue into next year. This trader recently purchased 2,000 of the January 50-strike calls with the stock at $42.44. The calls cost $2.12 apiece, or $424,000 for the block. That's also the max loss on the trade if SNAP shares are below $50 at expiration.
The breakeven point for this trade is $52.12, or nearly $10 higher than the price at the time of the trade. So, it’s clearly a bullish viewpoint. The upside gain is potentially unlimited, with every $1 above the breakeven point worth $200,000 in profits.
Over the last week, about 70% of the options activity in SNAP appears to be of the bullish variety. So the January call buyer isn’t the only one who has a strong, positive opinion on the stock. With France and Germany going back into lockdown, and the COVID numbers in the U.S. once again on the rise, social media companies like SNAP could continue to see rapid user growth.
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SNAP shares rose $0.32 (+0.78%) in after-hours trading Monday. Year-to-date, SNAP has gained 149.79%, versus a 4.06% rise in the benchmark S&P 500 index during the same period.
About the Author: Jay Soloff
Jay is the lead Options Portfolio Manager at Investors Alley. He is the editor of Options Floor Trader PRO, an investment advisory bringing you professional options trading strategies. Jay was formerly a professional options market maker on the floor of the CBOE and has been trading options for over two decades.
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