No One Likes Snap Inc… And for Good Reasons

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When I read a lot of negative commentary about a stock, I often take a second look at it.

No One Likes Snap Inc... And for Good Reasons
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Stock prices are a rolling auction, and if a stock is oversold, or the bears are being slaves to fashion, there may be a way to make lemonade out of the lemons.

But there’s not enough sugar in the world to make lemonade out of SNAP Inc (NASDAQ:SNAP). It is what I called it in September — a waste of your time and your money.

Yet another loss is due Nov. 7, 30-32 cents per share, as the company continues to burn cash from its public offering. Why would you throw more gasoline on this fire?

Snap Is Facebook Without the Cloud

Snap came to market as an early clone of Facebook Inc (NASDAQ:FB), with the added feature of erasing messages, sort of. What’s clear by now is that it’s a relatively small company with all the problems of Facebook, but none of the charms — or hope of profitability.

Snap is a consumer cloud application with a business model that is built on advertising. But its ad technology is second-rate, and it rents rather than owns the cloud that hosts the service. Thus, there is no compelling investment thesis to it. As Gertrude Stein said of Oakland, “there’s no there, there.”

InvestorPlace writers agree on this. Vince Martin says the growth expectations priced into the stock are unrealistic.  Its purchase of Placed looks like a waste of money. It’s facing patent suits.

Snap appears to have a strong cash position, with nearly $2.8 billion in the bank as of June, but most of that is money from the public offering. Operating cash flow has never been positive and, at the expected “burn rate” of $200 million per quarter in losses, it should all be gone within three years, at which point the party will be over.

Who Let You In?

This is a publicly-traded company run by co-founders who are younger than my kids — and less mature as well. Their technology is useful at parties but are you going to invest money in something that’s useful at parties?

You can make money on Snap, as our Joseph Hargett writes. Just bet against it. The moves expected in the shares are too small, thanks to the cash, to make an outright buy or sell very profitable, and this is not something you want to “invest” in for more than a few months.

There are indications some of the adults at Snap, and there are a few, have a clue as to what is going on. They’re tightening the reins on spending, laying off recruiters and a dozen engineers who had been working on its Spectacles, an idiotic wearable that sold fewer than 42,000 units in the last quarter, down 30%. Its plan to sell ads inside TV shows offered through the service looks like another failure.

The Coming Unicorn Crash

Professional analysts have an average hold rating on this dog, but I have never been in doubt that you should avoid it like you would a teenage driver.

As I wrote in June, Snap stock is signaling a crash for “unicorns,” the privately-financed companies claiming valuations over $1 billion like Uber, AirBnB, and WeWork. The difference between this dot-com bubble and the one in the 1990s is that it’s mostly big private investors who are taking the losses. To that extent, small investors have been fortunate.

Having just a vision is no solution. The losses at the unicorns will, in time, infect the whole market, once they’re priced to their real values. That makes this a good time to hold cash.

Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in FB.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.

 


Article printed from InvestorPlace Media, https://investorplace.com/2017/10/like-snap-inc-snap-no-reasons/.

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