3 Reasons You Should Avoid Snap Inc Stock at All Costs

Snapchat stock has very little going for itself, investors should beware

By Laura Hoy, InvestorPlace Contributor

SNAP Stock Needs a Miracle to Recover From Latest Quarter

Source: Shutterstock

The social media space is a fickle place to operate- especially when you’re catering to younger users whose minds can change with the wind. That’s certainly the case for Snap Inc. (NYSE:SNAP) and despite having Q4 earnings beat, the firm is still too risky to become a long-term bet. Over the past month, Snapchat stock has made its way 28% higher, but I wouldn’t expect that trend to continue.

SNAP is likely to stumble again very soon.

Fickle Customers

One of Snap stock’s best assets could also be the firm’s biggest weakness as well, its young demographic. On one hand, SNAP has been able to capture the attention of the elusive millennial generation, however unfortunately that same demographic is also very fickle and could  turn on the company quickly.

We saw evidence of this when SNAP rolled out its latest update. The company’s core users complained and influential celebrities like Kylie Jenner commented that the app was virtually useless. While reports that download rates remained strong despite criticism of the new interface, at very least the ordeal should make investors question the company’s staying power.

It remains to be seen exactly how the new interface will ultimately play out. Although App Annie commented that the download rates remained constant, Maybelline New York said its views have “dropped dramatically” on the platform.

We’ve seen it before with social media companies that appeal to young consumers. What’s hot today often doesn’t have any appeal five years later. Just look at what happened to MySpace, or Twitter Inc. (NYSE:TWTR) for that matter.

Lacking Trust in Snapchat Stock

Another thing investors should consider about Snapchat stock is the company’s transparency. Do you trust CEO and founder Evan Spiegel? Because I certainly don’t.

I’ve written in the past about how I don’t agree with Spiegel’s leadership style and how, it should be worrisome to investors that he doesn’t openly discuss his future plans for the company. Since that time, it appears that very little has changed when it comes to the culture at Snap Inc.

For instance, SNAP is technically a “camera company.” That’s because when the firm first debuted, it came out with a line of sunglasses that could capture what the wearer was looking at through a tiny camera. Unsurprisingly, the glasses had a lackluster reaction. However, surprisingly the company is moving forward with its dreams of being a camera company.

In fact, Snapchat is rolling out another pair of glasses.

Executive turnover has been high at SNAP, and staff at lower levels reportedly were denied bonuses for internal goals that were never actually defined. Meanwhile, Spiegel himself made a cool $637 million in 2017.

There Are Better Options than Snapchat Stock

Sure, rival Facebook Inc. (NASDAQ:FB) doesn’t have the same shiny newness that Snapchat stock does, but it’s most certainly a better buy. Not only does FB offer investors stability, size, and financial security, but the firm has been slowly but surely “borrowing” all of the things that make Snapchat appealing.

Instagram has also seen exponential growth and Facebook’s far superior cash reserves means that Zuckerberg and his team can continue to dump money into Instagram for as long as it takes to run Snapchat out of town. Not only that, but FB has been open about its plans for the business in the future.

Finally, even though FB is arguably a much better investment, it’s remarkably cheaper than Snapchat stock. Since SNAP has yet to become profitable, the only way to measure its share price is it’s price to sales ratio, which comes in at 26.79. That’s more than double Facebook’s 12.85 price to sales ratio.

The Bottom Line

Snapchat stock might have a lot of hype surrounding it, but little else of substance. The firm’s corporate culture is worrying and having Spiegel at the helm does very little to inspire confidence. So far Snapchat is simply relying on being a hot new social media company, something that’s unlikely to carry the share price for long.

As of this writing, Laura Hoy was long FB. 

Article printed from InvestorPlace Media, https://investorplace.com/2018/03/snap-stock-avoid-costs/.

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