It’s hard to feel bad for people these days.
When SNAP hit the market at $24 a share, it was already overvalued. In fact, if you look at the article right under this one, we note:
But be careful here. To justify that valuation, the stock needs to grow its bottom line significantly soon. And that’s not likely to happen. Unfortunately, growth hasn’t been a strong point for the company.
In fact, the company managed to lose $514 million last year on revenue of $404 million. It lost another $169 million in the fourth quarter on $166 million in sales, too. And growth in users seems to be slowing thanks in part to explosive competition. In fact, according to the S-1, its annual user growth is now below 23% - bad news.
User growth dropped from 15% daily active users in the first two quarters of 2016 to 7% by the last two quarters of the year. The other risk here is that Snap could become another Twitter-like disappointment on the market. Remember, Twitter may have had a hot IPO at $26 and ran to $44 on the first day, but it was a flop, sinking as sales slowed.
Those were known knowns. Nothing was unknown.
Yet, investors piled in anyway. Worse, of the seven analysts that cover this stock, not one of them has a buy rating. Instead, analysts at Needham, Atlantic Equities, Nomura Instinet, and Pivotal Research say sell.
Some of the top reasons for that is slowing growth in daily active users, slowing monetization growth, heavy bouts of competition, and far too rich valuation.
As we’ve noted since late last year, two of the better ways to make money from the SNAP IPO was to buy ETFs that typically run up on IPO momentum, including the First Trust IPOX (FPX), which ran from a December 2016 low of $52.63 to $57.40, and the Global X Social Media Index ETF (SOCL), which ran from a low of $21.54 to $24.25.
Sorry. But it’s hard to feel bad for people these days when they buy overpriced IPOs.