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According to some Wall Street bigwigs, there are plenty of reasons to own Snap Inc. (NYSE: SNAP), the creator of Snapchat, which went public yesterday….
Those bigwigs, by the way, aren't analysts, but the underwriters of Snap's IPO…
Morgan Stanley and Goldman Sachs just pocketed a cool $20 million each (and counting) to debut the company.
Good cheerleading on their part, and the rest of Snap's underwriters (JPMorgan, Deutsche Bank, Barclays, Credit Suisse, and Allen & Co.) will drive up Snap's price. This will allow them to exercise a "greenshoe" option to sell an additional 30 million shares – for more fees, of course.
None of these Wall Street heavyweights have initiated analysts' coverage of Snap, and probably won't for a while. Or, to be perfectly honest with you, ever.
If the reasons to own Snap come from underwriting cheerleaders, who aren't going to let their analysts cover it, you need to know the real score… and the reasons underwriters' analysts won't ever cover Snap.
Who Really Profits from Pumping Up Snap
Snap calls itself a "camera company," which is strange and self-defeating if you think about GoPro Inc. (Nasdaq: GPRO) and what a mess that stock is since going public. After debuting near $30 and getting quickly to nearly $100, GPRO's trading near $10 now.
Snapchat, Snap's only product that makes money (I'll get to that), is a camera app that allows users to add funny features to their pics, send them, and have them supposedly disappear.
This camera company's users are under 30 years old. That's a problem for the company on two counts:
- Young people get tired of apps and move on, especially if they become too "adult" or if too many adults embrace them.
- As these youngsters grow up, they're not going to be as inclined to send silly pics to their maturing friends. So the target audience for Snapchat is limited.
That's already showing.
While Snap says fourth-quarter 2016 average daily users was 158 million – a 40% increase from the daily user count in the fourth quarter of 2015 – sequentially, the growth of users from the third quarter of 2016 to the fourth quarter of 2016 was… pretty much none. Ouch.
Meanwhile, this past August, Facebook's Instagram launched its own version of Snapchat's popular 'Stories' feature. Instagram's version of Stories, which it also calls Stories, has 150 million average daily users already! And while Snap's been preparing for its IPO, Facebook's been launching another Snapchat-like product on WhatsApp, which has a billion users in 180 countries. Ouch, again.
Don't expect Snap to turn a profit soon. It's losing money hand over fist, even as its revenue pops.
Snap's 2016 revenue rose from $59 million in 2015, to $404 million… a whopping 585% increase. Still, the company had a net loss of $515 million in 2016. It's burned through more than $1 billion in the past tw…
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.