Lately the gains on Snap Inc (NYSE:SNAP) have been disappearing. Last week, SNAP stock lost about 7.4% to $20.56. It’s important to keep in mind that most IPOs involve lots of volatility. For the most part, the markets must go through a process of adjusting and learning about the company. But SNAP has also not released much information either.
Consequently, the void has been filled with mostly negative news.
There are, of course, various analyst reports that generally focus on the nose-bleed valuation. But there are also concerns about the deceleration in the user base as well as the traction with monetization.
More Trouble for Snapchat?
In fact, some of the analyst reports on SNAP stock have been downright frightening. Just look at Pivotal Research Group’s Brian Wieser, who issued a $10 price target. In his analysis, he noted: SNAP stock is “significantly overvalued given the likely scale of its long-term opportunity and the risks associated with executing against that opportunity.”
Snapchat has also had to deal with some internal drama: former employee, Anthony Pompliano (he was on the payroll for only one month) alleges that SNAP stock has an “outsized valuation [that] is built on a house of cards” and that management has engaged in manipulation of metrics.
But perhaps the biggest issue for Snapchat has been the company’s arch rival, Facebook Inc (NASDAQ:FB). Let’s face it, the fight between these players seems almost unfair. FB is growing revenues at more than 50% and it is generating substantial cash flows. But the most powerful weapon is its massive user base, which spans marque assets like Instagram (600 million users), Messenger (1 billion users) and WhatsApp (1.2 billion users).
Of course, FB has been cleverly leveraging all these with essentially knock-off features of Snapchat. The joke is that SNAP is really just the main R&D subsidiary of FB!
So yes, investors in SNAP stock should have some worries. Tech history has plenty of notable examples of heavyweights crushing upstarts. Look back at the 1990s, when Microsoft Corporation (NASDAQ:MSFT) relentlessly attacked Netscape.