Snap, Crackle and Pop!
Senate Intelligence Committee Chair Mark Warner, a Virginia Democrat, made the TV news rounds this past weekend. Warner told Fox News that he plans to introduce a bill this week that would allow the US to systematically ban Chinese technology, and that this technology would include banning social media services like TikTok.
The bill will be co-sponsored by Sen. John Thune, a Republican out of South Dakota in a show of bipartisan cooperation. TikTok is owned by ByteDance Ltd., which is a Chinese firm that has tried to distance itself from its mainland Chinese roots by hosting user data in Singapore.
Readers will recall that U.S. intelligence has long considered that TikTok might have connections back to the government in Beijing or even the Chinese military. Former President Donald Trump even tried to engineer a sale of TikTok's U.S. business from ByteDance to a U.S. tech firm such as Microsoft (MSFT) or Oracle (ORCL) .
Warner, for his part, cautioned that China is a threat to the U.S. that goes beyond that of the old Soviet Union. He commented... "I think for a long time, conventional wisdom was, the more you bring China into the world order, the more they're going to change. And that assumption was just plain wrong."
Warner explained further... "You have 100M Americans on TikTok for 90 minutes every day. They are taking data from Americans, not keeping it safe. But what worries me more with TikTok is that this can be a propaganda tool."
Former President Trump and Senator Warner are apparently not the only ones who have a problem with TikTok specifically, but with Chinese technology more broadly.
The Biden administration is said to be nearing completion of what will be an executive order that will aim to restrict investments made by U.S. companies in some parts of the Chinese economy with an emphasis on more advanced technology. The idea behind the executive order will be the prevention of the exploitation of U.S. technology in a way that threatens U.S. national security.
Needless to say, some of TikTok's U.S. competitors had a nice day on Monday. Snap Inc. (SNAP) ran 9.48%, and Alphabet (GOOGL) rallied 1.58%. Meta Platforms (META) , which is in the news for other corporate headlines this week, actually lost 0.2% on Monday.
On Monday, TikTok, trying to get ahead of this issue, revealed "Project Clover" in London, which will be the firm's plan to safeguard user data for Europeans. TikTok plans to hire a European third-party company to independently monitor the firm's European operations, while the data is stored in servers across that continent.
TikTok has a similar plan for the U.S. nicknamed "Project Texas." The question remains for both U.S. and European legislators: "Can TikTok refuse an order from the Chinese government in Beijing?" That question for many, has not been satisfactorily answered.
Taking a Second Look at SNAP
It's been a long while since I have considered SNAP for investment purposes. Is it time to take another look? I have my doubts.
SNAP will report the firm's fiscal first quarter in about a month. Expectations are for an adjusted EPS of a loss of $0.01 (GAAP EPS of $-0.23) on revenue of $1B. The one penny loss would compare to the adjusted loss of two pennies a year ago, while the revenue print would amount to a year over year contraction of 5%.
The fact is that the loss or restriction of TikTok for U.S. consumers who don't mind having their brains hemorrhage through their ears for the sake of less than intellectual entertainment probably would end up improving market share for competitors such as SNAP. The fact also is that Apple (AAPL) having permitted users to choose how targeted that are willing to be has hurt the value of advertising on social media platforms that are heavily reliant upon exposure to Apple's customers to remain relevant. getting rid of a foreign competitor does not fix this issue for SNAP.
For the most recent quarter reported (December), SNAP posted operating income of a loss of $253.2M and net income of a loss of $288.5M. The firm did drive operating cash flow of $125.3M and free cash flow of $78.4M. Yes, those cash flow numbers are positive. This left the firm with a cash position of $3.939B and a current ratio that was quite robust at 4.32. This is really healthy.
Total assets amounted to $8.03B including $1.851B in "goodwill" and other intangibles. At 23% of total assets, this is a little on the heavy side. Total liabilities less equity comes to $5.489B. This includes $3.743B in long-term debt. SNAP can cover its entire debt-load with the cash (and short-term investments) on hand. The firm does generate positive cash flows. That said, SNAP has not recently been GAAP profitable and is not expected to post even an adjusted profit next month.
Readers can see just how far from grace this name has fallen, leaving unfilled gaps now much higher at multiple locations on the chart. Let's zoom in.
Readers can see that when the shares peaked at $13, that filled the most recent gap on the left which coincided with the $13 level. This area has provided resistance in August, September, and again this past November. That is what this stock needs for a technical breakout.
You get $13 and survive at least one test from the upside at that spot, then something like $15 or $16 becomes possible. Not the breakout you were looking for? I don't think this stock has one of those left in it, for now. Even if TikTok magically goes away. Only a change in the way that Apple protects consumers or a massive shift by consumers away from Apple could provide SNAP with what they need (my opinion) for that kind of a move.
There is not a level where I see this name as a discounted purchase. It would have to be on momentum, and I would have that quick out already mentioned planned ahead should that happen.
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