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2 Reasons Snap Inc (SNAP) Stock Should Be Left Alone

SNAP stock might never get above the $24 mark again

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Snap is showing weakness in user growth. Snap appears to be saturating its target demographic; Samadhi Partners estimated that a whopping 71% of the U.S. population between the ages of 18 and 24 uses Snapchat.   

And Facebook, Snapchat’s archenemy, is copying Snap’s best features on Facebook, Messenger, Instagram and WhatsApp, and this appears to be affecting Snap’s growth. Snap’s quarterly daily active user growth slowed 82% after introduction of Instagram Stories.

Snap may face difficulty expanding overseas, given founder Evan Spiegel’s alleged comments about poor countries (Snap denies these comments, calling it the work of a disgruntled former employee).

One of Snap’s growth engines appears stalled; in the future, Snap’s growth will depend more heavily on ARPU growth.

Steer Clear of SNAP Stock

Snap faces several risks that could potentially drag the stock down. Valuations are at stratospheric levels, and the company is bleeding out billions of dollars this year.

Not only is Snap not profitable; Snap is burning cash like there’s no tomorrow. As Shira Ovide of Bloomberg Gadfly noted, Snap has the distinction of being one of the few companies she’s ever seen to boast a cost of revenue higher than its revenue.

And if that weren’t enough, one of Snap’s two growth engines, user growth, is petering out; slowing user growth means Snap will rely more on ARPU growth.

There’s a small bull case, but it can’t shout over the bears.

As of writing, Lucas Hahn did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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