Last November I called Snap Inc. (NYSE: SNAP) the "single most dangerous" IPO I'd ever seen and urged you to give the company a wide berth… or take your money to Las Vegas where at least you'd have fun losing it.
Legions of Silicon Valley faithful weren't happy I said so, and neither were scores of Wall Street analysts doing their best to convince you that Snapchat was a ticket to easy riches.
Fast forward to today.
Snapchat badly missed Q3 earnings Tuesday and, not surprisingly, the company's stock is getting pummeled. It's down a stunning 19.21% and trading at $12.36 per share as I type.
Anybody who's gone along for the ride is now sitting on mounting losses of at least $14.73 a share and 54.4% from a post-IPO peak value of $27.09. That works out to a staggering $16.55 billion loss of capitalization and would require the stock to move 119.17% just to break even.
Unbelievably, the dialogue in the media at the moment is "is the company a 'Buy?'" – a question I myself was asked Wednesday morning on "Varney & Co."
My answer? No way in you know what, and not unless you like losing money.
Lottery tickets – which is what Snapchat represents – have no place in a legitimate investment portfolio.
- Failed to bring new users onto the platform. In fact, the company added a pathetic 4.5 million users during the quarter, which gives it no hope of ever competing effectively against the likes of Facebook Inc.'s (Nasdaq: FB) Instagram and the 500 million daily users it has.
- Missed already laughably low revenue expectations by bringing in a paltry $208 million.
- Posted a net loss of more than $443 million.
Frankly, my jaw is on the floor – and it's not a reaction to Snap's numbers.
It's that Wall Street continues to ply the same old tired story to millions of investors who – unbelievably – fall for the premise of quick riches when there is no resounding business case to be made.
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Snap's abysmal results make it abundantly clear to me that CEO Evan Spiegel and his team have no idea what they're doing, let alone the kind of visibility into their customer base and business operations needed to make their Snapchat an ongoing, viable concern.
Take the company's much ballyhooed Spectacles, for example.
They were supposed to result in hundreds of millions of dollars in revenue from people who were going to purchase them from vending machines and subsequently post the most intimate details of their lives online for the world to see.
Problem is, I've never seen a single person wearing them, which is why I'm not surprised the company took a $40 million write-off on excess inventory. That's Wall Street-speak for "Snap couldn't sell 'em at any price, so the accountants considered the Spectacles a complete loss."
Thankfully, Wall Street's analysts appear to be waking up.
RBC Capital Markets analyst Mark Mahaney noted simply that the company's executives "have less visibility into the business than we thought" and that RBC made "the wrong call" with a buy at $24. His target… $15.00.
Piper Jaffray analyst Sam Kemp suggests that Snapchat's management is "showing considerable fluidity in how it is managing its business" and believes "this reflects poor leadership under a corporate governance structure that lacks accountability for senior executives." His target… $12.50.
UBS analyst Eric Sheridan penned a note to clients he called "SNAP, Crackle, Flop" in which he observed that the company will continue to "struggle on multiple fronts in the coming 12 months." His target… $7.00.
I think the company is worth half that and only then to a buyer with very specific needs that may reside in some of Snapchat's code – a scenario I'm admittedly hard pressed to imagine.
So Now What?
Let Snap's "story" – pun intended – be another lesson in a long line of lessons why you don't want to risk your hard-earned money on Silicon Valley's whiz kids until they've proven they can run a profitable business with real customers.
IPOs are exceptionally dangerous for your money.
The world's financial exchanges are littered bones of failed companies and the investors who fell for the hype associated with "potential," especially when it comes to social media. Remember MySpace? Ping? The Hub? ConnectU? Most investors don't.
The best thing you can do for your money right now – especially with another soon-to-be-hyped-up list of IPOs slated for 2018 – is to remember these five crucial takeaways…
About the Author
Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.