Shares of Snap Inc (NYSE:SNAP) are now trading below their $17-per-share initial public offering price, 40% lower than where they traded the first day, and 51% off their all-time highs. SNAP stock is in a free-fall and the bears just keep piling on, causing more damage each day.
But, if reading Snapchat’s performance stats as a public company still isn’t enough to keep you from wanting to buy SNAP stock, let me give you a few more reasons.
Social Media Competition is Fierce
Since Snapchat’s early days, Facebook Inc’s (NASDAQ:FB) Mark Zuckerberg wanted to buy the company. It was said that Zuckerberg offered $3 billion to buy Snap. When SNAP’s management (who, in my opinion, aren’t very smart) told Facebook, “Thanks, but no thanks,” Mark Zuckerberg and co. ended up buying Instagram for $1 billion instead.
Snapchat’s most recent figures indicate the company has 166 million average daily users. It is estimated Instagram has approximately 400 million daily active users. Clearly, Instagram has become a lot larger than SNAP.
However, Snap grew its user by 5% quarter over quarter in Q1 2017, 3.2% in Q4 2016, and 7% in Q3 2016. This growth isn’t very impressive, indicating SNAP may be more like Twitter Inc (NYSE:TWTR), than some users and analysts may want to admit.
In Snap’s S-1 report, user growth indicated that it had already slowed more than Twitter’s had back in 2014. While I could see Snap maintaining a loyal user base, much like Twitter, albeit with no growth, the future is still very bleak for SNAP stock.
The SNAP User Experience
A reason for Snap’s slow growth is due to the difficulty new users experience when trying to figure out how to work the Snapchat mobile app. In the company’s S-1 management admitted that it intends to keep the user experience more complex than that of other platforms. Apparently, Snap doesn’t want to be like other apps and, therefore, intentionally designed the user interface to be complicated.
While this strategy may be effective for younger generations, the company is stifling its own growth with regard to older generations. User growth has slowed, seemingly because the feasible number of younger users is nearly exhausted.
Until management makes the user interface less cumbersome, growth figures will continue to suffer.
Big Downgrade for SNAP Stock
Four months after Morgan Stanley served as lead underwriter for the SNAP stock IPO, the investment bank downgraded the stock. There’s no denying that having an underwriter downgrade a stock and slap it with a price target below the IPO price — just four months after taking it public — is as clear an indication as any that the company is headed for disaster.
Morgan Stanley analysts lowered SNAP stock rating from overweight to equal weight, then cut the price target from $16 per share to $12. Reasons for the downgraded included competition, lack of platform improvement, and a looming lock-up expiration date of July 29th. Many expect insiders to sell en mass once lock-up expires, and SNAP stock will see another big decline.
No Voting Rights for SNAP Shareholders
Another issue for SNAP stock investors is the lack of voting rights, which some insiders also don’t like, apparently. Snap shareholders can’t even unite and vote as one large group, either, because the shares sold to the public didn’t contain voting rights.
This isn’t entirely uncommon, though; many companies, including Facebook, Under Armour Inc (NYSE:UAA, NYSE:UA), Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) and others have duel share classes. The truth of the matter is that as an investor, especially one without voting rights, you are putting your money and faith in the management team, with no authority or recourse should things not go your way.
Snap Inc Has Management Issues
Personally, this is one of the biggest reasons why I wouldn’t buy SNAP stock. The company’s management team doesn’t seem to be the most intelligent. Turning down a $3 billion buyout offer from Facebook, exchanging sexist and sleazy emails between top management — including the CEO — and purposely making the user experience difficult are all bad enough. But, perhaps the biggest moronic move by SNAP is trying to describe itself as a “camera company” and not a social media company.
Does management not remember what happened to the last big camera company? It was called Eastman Kodak, and being a camera company isn’t working out so well today, is it? Furthermore, Snap garners most of its revenue by selling advertisements, not cameras.
When we look at the great companies of the past and present, nearly all of them had, or still have, great leaders like Sam Walton, Jim Sinegal, and Steve Jobs, or present leaders like Jeff Bezos, Tim Cook, and Redd Hastings. Poor management will doom even the best and brightest companies (imagine where Apple would be if Steve Jobs had never returned).
As of this writing, Matt Thalman own shares of Facebook, Twitter, Alphabet, and Under Armour. Follow him on Twitter at @mthalman5513.