Snap Inc (NYSE:SNAP) has captured the attention of Wall Street since its public debut earlier this year, but not all press is good press. Yesterday, all eyes were glued on Snapchat’s parent as it presented its first-ever quarterly earnings report. Today, all investors are punching the “sell” button on SNAP stock.
Now, Snap had warned investors that user growth wouldn’t be anything to write home about, and that big losses were on tap. Indeed, the company posted a loss of $2.2 billion — twice as much as the year prior, due mostly to stock-based compensation expenses — and also missed Wall Street’s sales consensus (despite a 286% year-over-year expansion).
At the same time, the company only added 8 million users and is still lagging rival Instagram overall.
Thus, investors were heading for the exits in droves once concerned speculation became a reality. In after-hours trading alone, SNAP stock lost nearly a quarter of its value. Shares were faring a little better Thursday morning, “only” down 19% to $18.67 — not far from its initial offer price of $17.
Facebook Inc (NASDAQ:FB) itself suffered some stumbles when it first debuted on the public markets. And on the earnings call, Snap CEO Evan Spiegel laughed at the fact that Facebook has copied many of its features — validation, if you want to spin it that way.
But there’s one big difference between the two social media apps.
Why SNAP Stock Won’t Snap Back Like Facebook
While Snapchat does have an obvious monetization model in Sponsored Stories and is already attracting brands, it’s light-years behind Facebook on one important factor: data.
Advertising increasingly relies on very specific information about consumers to deliver targeted messages to Internet users. Facebook has far deeper data troves than Snapchat could even dream about at this point.
As a feature in The Economist about the value of data pointed out this week, Alphabet Inc (NASDAQ:GOOGL) and Facebook accounted for nearly all the revenue growth in digital advertising in the United States last year. In fact, such tech giants are so dominant, Facebook is being argued as a monopoly in some circles.
So while Snapchat might seem like a competitor because some features overlap, it’s not even playing in the same league.
The fact that Snap is the underdog in this fight wouldn’t be nearly as concerning if there weren’t so many other red flags. Facebook isn’t the only competitor for Snapchat; social media is a fast-moving, tough space to play in. While filters and disappearing messages helped the app get to where it is today, it’s much harder to spin such features into a sustainable business model.
Spiegel may be touting creativity, but that’s historically been the hardest thing to monetize. The ability to put bunny ears on yourself and send it to a friend might be fun for millennials, but I’m not convinced it’s ever going to have enough substance or enough data to make Wall Street happy, or to send SNAP stock to meaningful, long-term gains.
Hilary Kramer is the editor of GameChangers, Breakout Stocks, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.