Anytime a company experiences a massive wave of volatility like Snap Inc (NYSE:SNAP), you are guaranteed to find contrarians. They will insist that, for example, that SNAP stock has “hidden” value, that the markets aren’t properly assessing the opportunity. When pressed for clarification, contrarians will offer an explanation akin to “just because.” My advice? Don’t be that person.
SNAP stock reminds me a lot about the ongoing drama between Rite Aid Corporation (NYSE:RAD) and Walgreens Boots Alliance Inc (NASDAQ:WBA).
Rite Aid is on the brink of disaster. However, the company can legitimately turn itself around if a deal can be brokered and if management can implement a focused strategy. As my InvestorPlace colleague Bret Kenwell states, that’s a lot of “ifs.”
With Snapchat, we’re not dealing with “ifs” but rather, “whens.” When will Facebook Inc (NASDAQ:FB) and Instagram copy prime Snap concepts, and distribute them across a much more popular network? When will younger, attention-span challenged Millennials find another digital “safe space” to express their feelings? Most importantly, when will advertisers realize the Snapchat charade?
As our feature writer James Brumley notes, Snap isn’t doing itself any favors with its confusing strategy. He put it best when he said that the company suffers from an “identity crisis.” Rather than addressing the hemorrhaging of its intellectual property, Snap wants to position itself as a camera company. That alone should make SNAP stock investors question the validity of this organization.
Still, Snapchat was one of the most hyped initial public offerings in recent memory. Nominally, plenty of believers exist. I’d like to preach the anti-Snap gospel, if I may:
Snapchat Is on the Fringe of Internet Popularity
My last write-up for SNAP stock was brutal. I usually try to hedge my bearish analyses so that investment trolls don’t hurt my feelings. But my opinion at the time was that Snapchat was so terrible that it deserved my derision.
In hindsight, I wish I was more brutal. From my last date of publication until the time of writing, SNAP stock dropped an alarming 28%. And just prior to that article being published, Snap had already endured a 12% slide in the markets. I committed a contrarian no-no, yet I emerged “victorious.”
Yelling “run” on Snapchat had nothing to do with excellent investing acumen. It simply required a willingness to call a spade a spade. I don’t recall any of my colleagues making a glowing recommendation for the beleaguered company. In fact, most of them were sounding the alarm across the frequency spectrum.
If for whatever reason you didn’t hear the cacophonic warnings, then read this: Snapchat is nowhere near as popular as you think!
According to Amazon.com, Inc.’s (NASDAQ:AMZN) internet data aggregator Alexa, Facebook is ranked third in the U.S. and the world. Instagram is ranked inside the top 20 globally, and features an eclectic mix of visitors from Russia, Japan, and China.
Snapchat.com? The site doesn’t even crack the top 4,000 globally. Within the U.S., which comprises the bulk of its traffic, the site is ranked at 1,803. I don’t even think that they have Millennial trophies that go that low.
SNAP Stock Fell Below a Critical Level
At this point, I think it’s overkill to mention the technicals. Obviously, Wall Street has quickly fallen out of love with SNAP stock; hence, the death spiral.
But as a final warning, I want to draw your attention to an ominous statement Mr. Brumley made.
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At the time his article was published, Snap shares traded hands between $17.20 and $17.48. In his closing remarks, Brumley wrote, “A move below its IPO price of $17 is still within easy reach. One stumble could get those dominoes falling.”
Interestingly, on July 10, SNAP stock closed at $16.99. The previous record-low close was on June 15, when Snap closed at $17 even. The IPO price, as Brumley alluded, had significant technical meaning.
On July 11, shares gapped down, eventually closing at $15.47. It has never been the same since.
Snap Inc is simply a sad, confused company. Because of its delusions of grandeur, the company fought well above its weight class. In doing so, it got pounded, and the “pounders” haven’t even broken a sweat. There’s not a whole lot that can be done with SNAP stock besides shorting it, or avoiding it altogether.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
