October 16, 2021

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Unlimited Technology

Why Snap’s Shares Fell 11.1% This Week

What happened 

Shares of social media company Snap (NYSE:SNAP) dropped 11.1% in the first four days of trading this week as growth and tech stocks had a rough week. The company hasn’t released any news that might account for the large drop in shares, so this was a market-driven phenomenon. 

So what

There was one big news item that drove both growth stocks and tech stocks lower this week, affecting Snap stock, and that was about interest rates. The rate on Treasuries and mortgages rose sharply this week, which investors generally equate with a slowing economy. Markets would prefer extremely low interest rates and an “easy” monetary policy that provides a stimulus to the economy. 

People wearing Snap Spectacles looking out a window.

Image source: Snap.

Investors should focus on the long-term growth trajectory of the company, which still looks positive. User numbers are going up, revenue per user is rising, and the company is inching toward profitability. If that continues, the stock should do well over the long term, even if the market is valuing growth stocks like this a little lower this week. 

Now what

Sometimes investors are at the market’s whims, especially with short-term moves like this. I still like Snap’s direction and how quickly its financials are improving. Investors will want to watch third-quarter results in the next month or so to make sure trends are moving in the right direction, but I see nothing wrong with operations this week. But the stock was caught in the market’s sell-off, and that’s part of investing in high-growth, high-volatility stocks like Snap. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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