This has been a very good year for Snap (NYSE: SNAP) investors. The shares have rallied from under $6 a share to more than $14. Investors seem to believe that the company has begun to solve its problem of user growth. The app known mainly for its popularity among Generation Z and camera filters is trying to expand into video and games. Snap’s management is telling a compelling story by saying, “our ads can now reach more 13 to 34-year olds than Instagram in the United States.” This is challenging age group for advertisers to get access to, which helps explain the surge in the shares. However, there are some red flags that investors need to watch for in the next earnings report. In the short-term it may not be users that should determine the direction of the stock.

Logical reasoning or a problem hiding in plain sight

Snap reported back in 2017 that it would be laying off some employees and slowing down its hiring. Investors probably see this as a past issue that doesn’t have bearing on the company’s current fortunes. Snap said its slowdown in hiring is “logical” and simply a function of the company’s fast growth.

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