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Why Snap Gained 15.6% in September

By Billy Duberstein – Updated Oct 4, 2020 at 12:55PM

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Snapchat parent Snap was able to defy the tech sell-off in September, but how?

What happened

Shares of Snap (SNAP -3.63%) gained 15.6% in September, according to data from S&P Global Market Intelligence. The social media platform was a winner during an otherwise tough month for tech stocks, as a potential ban on rival Chinese social media platform Tik-Tok could benefit the company.

Additionally, a delay in privacy policy changes to the Apple (AAPL -3.00%) iOS14 rollout meant Snap was given a longer amount of time to adjust to new data collection restrictions. Finally, several Wall Street analysts also grew bullish on social media names during the month.

A young female teen seen from selfie perspective gives an ok with her hand and smiles.

Image source: Getty Images.

So what

In the beginning of the month, Apple announced it would be delaying privacy changes being made to iOS14, which would limit the ability of digital advertisers to track iPhone user browsing history and other data points. A delay would give social advertisers more time to adjust, and could signal that new privacy restrictions may be scrapped in part or altogether.

Additionally, Snap may have benefited from news that Chinese social media darling Tik Tok may get banned in the U.S. soon, as its proposed sale to a U.S. company or IPO remains highly uncertain. A U.S.-based Tik Tok could pose a greater competitive threat to other social platforms, so an outright ban could open up ad dollars for Snap and others.

Finally, analysts at both KeyBanc and Guggenheim put Overweight/Buy ratings on Snap in September, citing favorable tailwinds for the entire digital advertising space going into the fall and post-pandemic.

Now what

I've always been skeptical of Snap's stock, which nevertheless sits near all-time highs after its September surge. After growing 17% in the second quarter even amid the digital ad slowdown, the company has certainly proven some kind of staying power; however, Snap still remains unprofitable, and lost $632 million through just the first six months of the year.

It's a bit concerning that the company is still losing that much money while having 238 million daily active users. Furthermore, even if Tik Tok is banned in the U.S., social media and advertising in general remain competitive spaces. I think there may be better tech stocks to invest in after Snap's admittedly impressive month.

Billy Duberstein owns shares of Apple. His clients may own shares of the companies mentioned.The Motley Fool owns shares of and recommends Apple. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Snap Inc. Stock Quote
Snap Inc.
SNAP
$9.82 (-3.63%) $0.37
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