Snap Inc (NYSE:SNAP) was down nearly 15% from its first trade on an exchange in early March and off by more than 30% from its high hit the very next day. So it’s not a stretch to say Snapchat’s parent company has been something of a disappointment to a lot of investors who were sure SNAP stock was going to fly.
After all, the messaging platform was adding users at an amazingly brisk pace, and the revenue spigots had just been opened wide.
Funny thing about the rhetoric before and after the IPO: Before the company went public, it was being touted as the next Facebook Inc (NASDAQ:FB). After the IPO when its founders and the stock’s underwriters got paid, it’s being compared to long-term disappointment Twitter Inc (NYSE:TWTR).
It’s time to talk truth. A lot of unsuspecting investors got duped into buying SNAP stock for all the wrong reasons.
Red Flags in Black Ink
You’d think after Groupon Inc (NASDAQ:GRPN), Twitter, Zynga Inc (NASDAQ:ZNGA), Twilio Inc (NYSE:TWLO) and dozens of other post-IPO disasters, the market would figure out the game. That is, most companies about to go public put themselves in the best possible light in order to create the maximum demand for their stock. After they’re trading on an exchange and become fully-reporting entities, the proverbial dirty laundry starts to surface.
Snap was no exception to this norm. In April, it’s first-ever quarterly report as a publicly traded outfit indicated (yet another) slowdown in user growth, and a sequential decline in revenue. As it turns out, text messaging platforms are something of a commodity, and there’s a limit to how long users are interested in pics and movies sent from other users.
That’s something perhaps not adequately discussed in the company’s IPO prospectus posted for interested buyers of SNAP stock.
In the meantime, CEO Evan Spiegel has exposed his inexperience as the chief of a publicly traded company.
Case in point: He recently said he wasn’t interested in expanding in India because, as a poor country, it wouldn’t be worth the effort. Not only does the mindset not acknowledge that the platform and its operating costs scale up and down with revenue — the platform’s sunk development costs won’t change much — it’s proof once again that sometimes the best thing to say is nothing at all.
And yet, to those investors who actually bothered to read the company’s prospectus before going public (and taking it all in without any preconceived bias), none of this should be surprising.
For example, user growth was slowing even before the first quarter … and not just in percentage terms, but in absolute terms. Last quarter’s headcount of 166 million daily users is simply an extension of the already-waning growth trend.
Spiegel’s youth was right there in plain sight too. At only 26 years of age and no real work experience other than developing a curious but not particularly unique app, it can’t be terribly surprising he’s having a tough time embracing the fact that he’s always in the public eye, and will always be scrutinized by Wall Street.
Then there’s this little gem (which you can click to see in full-size), explaining in detail how founders Speigel and Robert Murphy have own classes of common stock with more voting power than the shares of SNAP stock issued with the initial public offering … a lot more.
And anyone who thinks Speigel could be easily replaced by shareholders should he not be up for the job better think again.