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What happened

Down as much as 24% at one point on Thursday, shares of Snapchat parent Snap (NYSE:SNAP) came roaring back on Friday following the release of impressive fourth-quarter numbers. According to data from S&P Global Market Intelligence, as of 11:40 a.m. ET today, the stock's up 47% for the day, translating into a full-week gain of 18%.

Facebook's parent company, Meta Platforms (NASDAQ:FB), deserves most of the blame. The social media company's flagship platform, Facebook, saw its number of daily users sequentially shrink ever so slightly during the final quarter of last year -- a first for the site. Monthly users were essentially stagnant. While the contraction didn't prevent revenue growth, concerned investors interpreted Facebook's headwind as a red flag for the entire social networking industry.

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As it turns out, however, Snap's Snapchat isn't facing the same struggle. Its daily user head count grew 20% year over year during the fourth quarter, reaching 319 million. This growth supported a 42% improvement in revenue, which led the company to its first-ever positive net income. All told, Snap turned nearly $1.3 billion in sales into a Q4 profit of just under $22.6 million. Realizing they'd made a mistake, investors quickly and decisively reversed their Thursday decision to sell the stock.

A one-day, 46% gain is typically a tough act to follow. And, this one may face the typical post-surge, profit-taking headwind.

Before refusing to wade into a position due to that concern, though, know that even with Friday's big advance, shares of Snap are still trading more than 50% below October's levels, leaving plenty of room for further upside. Bolstering the bullish case is the fact that Snapchat's product continues to be refined and proven to advertisers. Revenue growth more than doubled user growth, yet Q4's average per-user revenue (worldwide) of $4.06 remains at the lower end of the social media business's typical range. For perspective, Facebook's worldwide average revenue per user during the fourth quarter of last year came in at $11.57.

Regardless, current and prospective Snap shareholders should brace for plenty of volatility in the immediate future. The stock's been flung all over the map this week, and it could take several days for things to settle down to more normalized price movement.

This article represents the opinion of the writer, who may disagree with the official recommendation position of a Motley Fool premium advisory service. Were 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.

Read more from the original source:
Why Snap Crashed and Then Soared This Week - The Motley Fool