Monday, March 13, 2017

SNAP Stinks

A couple things I learned and then some of my own thoughts as to why Snap stinks.  

     25% of all stock issued at IPO was promised to be held for one year. Snap and the underwriters - Morgan Stanley and Goldman Sachs - were able to convince individuals/institutions to agree to buy the stock and hold onto it for at least one year. It's very rare that companies are able to accomplish this and those companies are actually turning a revenue. These shares that are held for a year are going to help legitimize the company, which is useful since they lost $514.6 million dollars last year. 

     Speaking to their profits, or lack thereof, Snap says they won't be profitable until 2020. And that elusive profit they speak of will only happen when [if] they quadruple their earnings year over year. That seems like a pipe dream to me. Some analysts and regular people are comparing Snap to GoPro and Twitter. They can't sustain the company at the size it's at now and they can't make money from their users. As most of us know Twitter has been struggling to deliver like Facebook has in the ad space and Snap looks like it's following in the footsteps. It just isn't a good platform to show ads. For those of you that use Snapchat, you know how simple it is to skip ads. For those that don't, all you need to do is tap the screen and it will skip it. There's no way to get any clicks on them since they disappear like regular snaps. Snapchats user growth has halted and less and less people are using the app. 60% of the people who use Snapchat are between 13 and 24. These are the ages of people who seem to hate ads the most. They want what they want immediately and don't like the ads getting in the way. That's a tough space to control. 

     43% of Robinhood App users bought shares of SNAP at the IPO. Based on Wikipedia, they have nearly 1 million users. Most of their user base consists of Millennials, that's who uses Snapchat the most, and some 430,000 of them bought the stock at IPO price. There have been articles posted about millennials and their "Live Now" mentality and their short term view on things, like profits. Let's assume, by the grace of god, that SNAP climbs to levels around $30 dollars. One could assume many of the Robinhood users take their 20% profit and head for the [Hollywood] hills. I am a millennial so I'm basically talking about myself. It peaked at $29.44 on day 2 of trading and has since come down to $22.10 as I write this. 

     If you look it up, Snap's headquarters is located in Venice, California. But, they don't have one central meeting location. They started off in one beachfront bungalow and as they grew they continued to buy up more beachfront real estate. Condos turned into offices directly on the beach. While it's pretty neat that they have so many offices on the beach, the lack of communication between different segments of the company is worrisome. One part of the business may have no idea what the other is working on. Employee moral could sink as social interaction is limited. This office setup also becomes a struggle for the management in trying to oversee what everyone is doing. It is very difficult when there are so many locations to take into consideration. Also, the CEO Spiegel has rarely visited these locations and hardly any employees have spoken with him. The choppy work locations paired with a CEO who doesn't talk with his employees is not a recipe for success.

    In my opinion the IPO price was set way to high for a company that hasn't earned a revenue and likely won't earn one for a long time. This company reminds me of Twitter in their inability to profit off their user base. It is incredibly over valued at this point. I was talking with someone smarter than I and they said they were going to look into buying puts around the first earnings call. If expectations for the company are already this high and Snap continues to not make money they will certainly take a hit. 


  1. I'm part of that 43%.

    1. If you don't mind me asking, what's your cost basis and what are your goals with it?