Today, I'm warning about another recently launched wannabe highflier IPO that crashed. Though it may look like a bargain now, it's just another gambler's stock and not a portfolio candidate.
I'm talking about Snap Inc. (NYSE: SNAP), parent company of the app Snapchat.
Its earnings report will be released soon, and there's a chance the stock could see a pop. But if you're smart, and I know my readers are, you'll think twice before buying into this fad.
Here's why SNAP will never be worth a gamble…
Everything That's Wrong with SNAP
Of course, you've heard about Snapchat. But do you know what it is, and what it does?
In the words of Pocket-lint, "It's the popular mobile app that allows you to send videos and pictures, both of which will self-destruct after a few seconds of a person viewing them. Snapchat is also a fun messaging app. You can capture a photo or brief video with it, then add a caption or doodle or filter/lens over top, and send the finished creation (called a snap) to a friend. Alternatively, you can add your snap to your 'story,' a 24-hour collection of all your snaps that's broadcast to the world or just your followers."
By the way, those videos and pictures you send that "self-destruct" can be saved by the receiver, simply by taking a screenshot of them.
But whatever, dude.
The company, founded in 2011, became hot quickly as Snapchat caught on with teenagers.
Facebook liked the app so much it offered Snap's owners $3 billion for the company in 2014.
They didn't bite. Instead, they added more users and went public on March 2.
Snap's stock was initially priced at $17 a share, raising $3.4 billion for the company… But it opened trading at $24 per share on the New York Stock Exchange, putting the company's market capitalization at about $33 billion.
The stock closed at $24.48, up 44%, at the end of its first trading day.
Lately the stock's been trading between $12 and $13, down roughly 26% from its initial $17 price, and down a whopping 58% from its high-water mark of $29.44.
There's a lot not to like about the company, which is why the stock's been diving.
To name a few reasons, Snap…
- Loses a ton of money
- Has a few hundred million dollars of negative operating cash flow
- Isn't growing daily users as expected
- Is totally controlled by its founders, who didn't give up any voting rights when they sold shares to the public
- And (lastly, but by every account worst of all) Snapchat's been copied lock, stock, and barrel by the biggest social media company in the universe: Facebook
Everything I just said about Snap was common knowledge the day Snap came to market.
To me, that made it a gambler's stock. I would never have bought Snap on its opening day knowing all that – never. If you thought the stock was going to be a winner, you were right for about a New York minute.
Now, not so much.
About the Author
Shah Gilani is the Event Trading Specialist for Money Map Press. He provides specific trading recommendations in Capital Wave Forecast, where he predicts gigantic "waves" of money forming and shows you how to play them for the biggest gains. In Zenith Trading Circle Shah reveals the worst companies in the markets - right from his coveted Bankruptcy Almanac - and how readers can trade them over and over again for huge gains. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.