Nasdaq, S&P 500 reach all-time highs as Big Tech rallies >>> READ MORE

Snap Inc (SNAP) Stock: This Is Your Reality Check

Slogans, mottos and branding are fine, but they don't pay the bills, and they don't grow SNAP stock

Source: Shutterstock

Kudos to Snap Inc (NYSE:SNAP) CEO Evan Spiegel. Not only are you running a company worth $26 billion at the ripe old age of only 26, but you’ve also managed to rattle the cage of much bigger rivals like Facebook Inc (NASDAQ:FB) and Twitter Inc (NYSE:TWTR).

Too many kids your same age are trying to wrap up their seventh year of undergraduate studies, and too many executives twice your age are still trying to figure out how to make an app that’s a tenth as popular as your Snapchat has been.

On the other hand — and this can be considered a warning to current and prospective owners of SNAP stock — you’re taking yourself and what Snapchat is way too seriously. That poses a big risk, as it can blind you to the seemingly-insignificant details that can end up ruining your company.

Talk Is Cheap

On the off chance you’re not familiar with it, Snapchat is an online platform for delivering messages to other Snapchat users. Its “shtick” is that those messages, pictures and videos disappear forever (unless they’re intentionally saved) a few seconds later.

It’s akin to Facebook’s Messenger, though the more relevant comparison is to Facebook’s standalone platform Instagram. Indeed, Instagram has made a point of copying pretty much every feature Snap adds to the Snapchat platform.

It’s a comparison Spiegel hates, by the way. The young chief executive insists an investment in SNAP stock is above all else an investment in a camera company and not an investment in a social network.

Never mind the fact that Snap has never sold one single physical camera.

SNAP stock chart

Enough industry insiders and influencers have obliged him his vision too. As Mashable’s Taylor Lorenz noted in mid-April, “Despite the fact that Instagram has made an effort to copy nearly all of Snapchat’s signature features, treating the two apps as similar platforms to begin with is a fruitless exercise.”

Lorenz went on to say, “And this is the challenge for Instagram: the company has also yet to prove that users are using Instagram specifically for stories. Snapchat has cultivated a fertile niche in consumer behavior as an addictive, essential destination, while, right now, Instagram Stories is just one more feature haphazardly incorporated into a fragmented app.”

Snapchat has “cultivated a fertile niche” leveraging its “addictive, essential destination” while Facebook’s construction of Instagram is “haphazard” and “fragmented?” Really? Just as a reminder, FB is the company that legitimized the social networking idea, and last year turned it into $27 billion worth of revenue.

This reporter is certain it’s not the case, but that excessive use of gratuitous adjectives almost sounds like Spiegel making the bullish case for SNAP stock, and against Facebook’s.

That mindset is the rampant norm too. In that regard, Snap has been effective at selling the premise, even if the company hasn’t been as effective at selling ads.

And therein lies the rub.

Next Page

Spiegel can categorize Snap as a camera company all he wants to. He can lump it in with grocery stores or hospitals if he wants. But how he sees it is largely irrelevant to how advertisers see it. If an advertiser is weighing allocating part of a marketing budget to Facebook or Snapchat (and they are), than Snap Inc. is a social networking company.

Pretending this comparison isn’t happening where it counts — with users as well as advertisers — is alarmingly short-sighted.

Perhaps the whole camera-company angle is more to make a point than formulate a business strategy … positioning Snapchat more for PR purposes than planning. That’s fine. At the end of the day, though, sometimes you can pound the table so hard that your business decisions can become misguided because you feel they’re supposed to cleanly align with the corporate motto.

At the end of the day, it’s supposed to be about making money, and not just projecting a particular image.

Bottom Line for SNAP Stock

Don’t read too much into the observation. Snapchat has a user base of 158 million, and it did $404.5 million worth of business last year. That’s more than a lot of other companies can say about their app.

On the other hand, there’s a whole slew of companies that thought themselves to highly marketable by being unique. As it turns out, they were unique for a reason — their service or product wasn’t nearly as marketable as they suggested to investors.

Case(s) in point: The same kinds of things being said of Snapchat now were being said about Twitter, Fitbit Inc (NYSE:FIT), GoPro Inc (NASDAQ:GPRO), and a whole slew of other startups when they were still new. Consumers and users loved them, but when all was said and done, all of those companies overpromised and underdelivered.

It just feels like SNAP stock is that same trap, with clever rhetoric and rave reviews obscuring the fact the business model just isn’t all that promising.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/ipo-playbook/snap-inc-stock-this-is-your-reality-check/.

©2017 InvestorPlace Media, LLC