Can Snap Stock Bounce Back After Last Week's 10% Drop?

MarketsMotley Fool

One of the market's most volatile internet stocks had another wild week. Shares of Snap Inc. (NYSE: SNAP) tumbled 10.2% for the week, slipping after the company announced layoffs. BlackBerry (NYSE: BB) also named Snap in a patent infringement lawsuit. Snap stock would go on to move lower in four of the week's five trading days.

The negative developments were more than enough to offset any potential buzz generated from the group video chat feature it would go on to introduce. The stock has now surrendered roughly a third of its value since spiking after the company posted blowout financial results two months ago. The shares are nearly back to where they were before that strong quarter triggered a 37% spike in the stock. One of last year's most disappointing IPOs is now also trading lower in 2018.

Continue Reading Below

Pink slips can be red flags

Snap stock's biggest decline came last Monday, on the heels of the regulatory filing announcing its latest round of layoffs. Snapchat's parent company let go 7% of its global workforce last month, primarily in engineering and sales.

Cutting engineers loose while a recent redesign is stirring up user dissatisfaction and it's making a big push into augmented reality doesn't sound very smart. The same can be said about paring back its payroll on advertising and content at a time when engagement might come under pressure following the platform's redesign. There are also morale issues that eat into the corporate culture whenever a company retreats. Snap has now had a couple rounds of layoffs since going public last year.

BlackBerry throwing legal fisticuffs also isn't a welcome sight. The smartphone pioneer is accusing Snap of using six of its patented messaging technology patents. This may not wind up being a big deal. However, it is another storm cloud for Snap investors to watch. BlackBerry's stock actually took an 11% hit itself last week.

Snap stock returning back to where it was before February's blowout quarter stings. That financial update was the first time that Snap shares moved higher after a quarterly report, as the stock tumbled in each of its first three quarterly outings. Revenue growth accelerated, and the 8.9 million net increase in daily active users was its best showing since going public. However, with many users -- including influential celebrities -- voicing their discontent or boredom with Snapchat this year, it will be interesting to see how usage trends hold up. Snap's next quarterly report will go out on May 1, after the market close.

Snap's group video chat feature is still a smart move. With the feature, users can video chat with as many as 16 of their Snapchat friends at the same time. It's too early to get a fair read on the video chat's popularity, but it could move the stock's needle if successful. Retention and engagement are big deals for a social platform, and group video chat should keep users and their friends close. At the very least, the new group video chat may be a good platform for folks that just got laid off by Snap to commiserate with one another.

10 stocks we like better than Snap Inc.When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Snap Inc. wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of April 2, 2018

Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.