We all can remember Snapchat and their grand entrance on the stock market when they launched their IPO in March of this year. They had the biggest IPO since Alibaba Group Limited, raising a whopping US$3.4 billion. The IPO price of US$17 quickly rose to US$24 on the stock exchange market just 24 hours after being listed. However short-lived, the stock price fell below the IPO price three months later, and it has been a roller coaster ride ever since.
Snapchat has been competing with social media giants Facebook, Instagram and Twitter but it is crystal clear who is winning. Facebook recorded 1.34 billion daily users while snap only recorded 134 million for their entire third quarter.
Snapchat has plans to redesign some features of the app and introduce a live feature similar to that of Facebook and Instagram. Despite the discovery feature, where companies place ads, Snapchat is a long way from competing with Facebook and Instagram in the ads market.
Snapchat’s revenue year to date has increased from US$404 million to US$705 million. However, the company’s net income is US$-3265 million, an alarming -463.2% deficit.
With a -102.8% in return on equity and a -92.2% return on assets, I remain concerned about the management team. It came as no surprise when critical executives of Snapchat Inc. resigned.
Currently, NYSE: SNAP is trading at US$14.75, a little above its fair value of US$14.00.
No need to get excited.
Given Snap’s significantly lower user base, the firm is more vulnerable than Facebook. A decline in digital ads would hurt Snap’s revenue growth more than that of its competitors and could delay or change the firm’s path toward profitability.
While buying any security has risk, SnapChat, in my opinion, is an unnecessary one not when there are better performing competitors like Facebook and Google.
Do you agree?
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