Short-lived tech darling Snap Inc (NYSE:SNAP) has lost 44% since it went public, 35% in the last 12 months and 15% year-to-date. Today alone, SNAP lost almost 5% despite some positive news about user growth — and after a strong run over the last week or so.
Deutsche Bank AG (NYSE: DB) analyst Lloyd Walmsley expressed optimism about SNAP’s daily active users in the wake of the platform’s redesign last month, with the bank upping its second-quarter estimates by 3 million. “We find the recent uptrend highly encouraging vis-à-vis user trends and platform relevance, seemingly removing one tail risk, at least near term,” Walmsley said.
On top of that, a study by Pew Research also showed that the number of teens using Facebook, Inc. (NASDAQ:FB) has decreased by 20 percentage points since 2015, with a larger percentage of teens saying they use YouTube, Instagram (though that’s of course still owned by Zuck & Co.) and SnapChat.
But the question for SNAP stock is how long it will take to turn teen popularity and strong sales growth into a profit. And despite the improved data on users, Wamsley is still cautious about SnapChat stock — and you should be too.
Social media is an especially fickle and competitive slice of the tech world. To bet on a company that’s trading for 10 times its sales in the hopes that it will eventually have a business model as strong as Amazon.com, Inc. (NASDAQ: AMZN) is risky. Consider teens could easily grow up and out of SnapChat and a million competitors are currently being incubated in Silicon Valley.
Bottom Line for SNAP
Looking in the near-term, SnapChat is slated to lose 17 cents this quarter, 60 cents this year, and 45 cents the year after. Sales growth is substantial, though: 40% this quarter, 43% this year, and 46% this year.
Short-seller Andrew Left of Citron Research is optimistic about SnapChat because he believes the bad news is baked it. But that’s hardly a bullish call for the stock. Betting on short-term bumps could work, but investors need to the recognize the risk involved. Heck, today relatively good news about user growth wasn’t enough to prevent the stock from consolidating recent gains.
Even if you believe the worst is over for SnapChat stock, it’s simply a dumpster fire that’s been attended to by the fire department. Sure, you could buy the pile of burnt rubbish based on the fact that it’s no longer engulfed in flames. But if you’re comparing it to the broader tech world, not just its own trouble past, don’t you think there are better places to put your money?
As of this writing, Robert Martin was long FB.
