Almost like someone flipping a switch, Snap Inc (NASDAQ:SNAP) became a hot stock again on Dec. 5. Barclays plc (ADR) (NYSE:BCS) analyst Ross Sandler was the switch flipper, claiming SNAP stock has a 30% upside and giving it an overweight rating.
CNBC host Jim Cramer, a notorious Snap bear, immediately jumped on the bandwagon, saying he liked the call and the price. In trading on Dec. 5 SNAP stock gained 10%, to almost $15 per share.
The company opened for trade on Dec. 6 with a market cap of $18 billion, $2.5 billion more than Twitter, despite having less than half Twitter’s revenue and with no profit in sight. TWTR at least had positive operating income last quarter. Today’s Snap investor is paying 20x the company’s anticipated 2017 revenue.
Twitter, or Dead Cat
They say even a dead cat will bounce if you throw it from a high enough building. This cruel joke is how Wall Street wisdom is made. It tells you to be skeptical of a failing issue that suddenly draws a bid because it’s “cheap.” Being compared with Twitter is better than being compared with a dead cat.
Since going public in March SNAP stock shares are down 39%, even with the Barclay’s bounce. What launched the new interest is a redesign that, in the words of co-founder Evan Spiegel, “separates the social from the media.” This isn’t just an editorial change, but an advertising one as well.
Media companies get a new “Discover” platform, with user data based on individuals rather than connected groups. Snap will recommend content like Netflix Inc. (NASDAQ:NFLX), rather than using algorithms to show users what other people like.
At the same time, Snap is trying to make its social connections more like those found on a Chinese service such as Weibo Corp (ADR) (NASDAQ:WB), whose WeChat platform is worth $22 billion because it is, almost entirely, a way to bring friends together, with minimal controversy or politics.
The difference, according to Spiegel, is that while Weibo is based on text messaging, Snap is based on picture messaging.
SNAP Stock and New Media
The idea that SNAP stock may not be dead is also part of a growing backlash against social media I observed recently in writing about Twitter, the separation between media and communication a way to finesse the problem.
As I wrote, Facebook and Google destroyed the media’s business model, which charged premium rates for access to specialized audiences, based on location, vocation, or avocation. Their ad networks let advertisers slice-and-dice the audience with great specificity, at run-of-network rates.
The premium that once went to content producers now goes to the networks, ad rates have fallen to near-zero, and news producers have been involved in a race-to-the-bottom for eyeballs and attention, rather than serving readers’ specific interests.
At the same time, Facebook and Google claim to be mere networks, like phone networks. They are media, but they’re not media and thus there is no media. We’re back to the village squares of the nation’s first decade, when politicians paid printers to tell their stories and truth was entirely subjective.
Can Snap’s redesign fix that problem? What Barclay’s, and Cramer, are saying is that whether Snap has the answer, young people are asking the question.
The Bottom Line on SNAP Stock
Our Vince Martin has looked at the Snap redesign and called it cosmetic, saying that the price of SNAP stock remains too high. Valuing a company half Twitter’s size at twice Twitter’s market cap is, indeed, silly.
But the bearish call should extend to all social media. Their creative destruction is now being pointed at their own algorithms.
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 [email protected] or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.