On top of that, the biggest problem for Snap is Facebook, which might not be solvable.Īnalyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. In this scenario, investors have no reason to own the stock until a big dip. The stock eventually soared after some of the post-IPO issues were resolved and the company grew into the lofty valuation. The key investor takeaway is that even the great Facebook traded down substantially after a hot IPO. If the company becomes more like Twitter, the multiple is already far in excess of where that stock should trade based off 2018 numbers. This target places Snap losing 33% of its value to trade more in line with Facebook, based on 2020 revenues. Even despite a long list of concerns, the analyst suggests revenues could top $4 billion by 2020 to reach his target for a multiple of 5x revenue targets. Moffett Nathanson placed a $15 target on Snap suggesting a valuation still in excess of $20 billion. Several analysts have actually placed Sell ratings on the stock following the IPO. What makes the platform attractive is the age demographics of the user base with the under-30 crowd, but this is also the group most likely to go at great lengths to avoid key video ads.Įven if these issues didn't exist, Snap faces a vast valuation problem. This news suggests that Snap not only has a well-documented user growth problem, but also an advertiser issue.

They say their average ad only lasts two seconds because everybody just taps through it. Snap has invented such a great product with so little friction where you just tap through stories. I was surprised there was not as much enthusiasm as there was 3-to-6 months ago. actually talked to a bunch of advertisers yesterday that work with Snap. Thursday on CNBC, Henry Blodget from Business Insider slipped out some highly negative news regarding advertiser demand for the social platform. Even under a scenario that Snap is a mammoth success, the stock could lose over 50% from the high of nearly $30 based on the Facebook example. This could become a bump in the road, but investors need to remember that Facebook traded all the way down to a low of around $17.50. Snap faces a much different issue in a bigger brother intent on copying new features developed by the company.

In a similar regard, Snap investors face a scenario where the stock is poised to break the IPO price. The more important part was that the company continued to innovate and bought out a future competitor in Instagram. The company faced concerns with the shift to mobile and the lack of advertising products for the future direction of the user base.įacebook faced an issue that, in hindsight, was probably just a bump in the road. Right after the IPO in 2012, Facebook dipped over 50% from the initial trading above $42. Is Snap a buy trading below $20 similar to the way the social-networking giant was a few months after its respective IPO? While a lot of people compare Snap to Twitter ( TWTR) due to user growth issues, the question should be whether the suddenly cold IPO ends up like Facebook (FB). As well, other concerning data points on advertising appetite add to the reasons for concern.

On the day that Snap ( NYSE: SNAP) closed below $20, one shouldn't be surprised based on the extreme valuation.

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