Yesterday's conversation during the ride home was about as damning an indictment of investment potential as I've ever heard…
Do you use branded filters?
…No.
What's your favorite company?
…Huh?
Which of the highlighted stories do you read regularly?
…None.
Let me tell you why this conversation is so relevant to your money.
The next six months will be critical.
My youngest son and his best friend sat in the back seat with a look on their face that fluctuated somewhere between bewilderment and deep thought as my colleague and good friend, Matthew Coble, peppered them with questions.
"Snap's management is delusional," he pointed out.
I couldn't agree more.
The company is still the most dangerous IPO I've ever seen.
The boys are 15 years old and both use Snapchat extensively to interact with their peers. Yet, neither could recall a single one of the fundamental variables that make the company such a "valuable" property on Wall Street despite the fact that they are supposedly the primary demographic.
Filters… no business value, just occasional comedic relief.
Branding… complete breakdown in the user experience with not a single company retained in their memory banks despite being bombarded by advertising (and ignoring it) as they use the app.
Cultivated stories… the primary demographic doesn't give a you-know-what.
Matt, who is a digital strategy expert with more than 20 years of experience working with the world's top brands, then went for the jugular: "Snap's business model is a joke because there is no business model that will allow the company to sustain the platform with sufficient revenue to run it."
Precisely.
The company lost $2.2 billion during its first 90 days as a public company. That takes talent – sarcasm fully intended. It will lose gobs more money in the months ahead.
CFO Drew Vallero said during the analyst conference call that Snap Inc. (NYSE: SNAP) is "still in investment mode," which strikes me as Wall Street speak for "we still expect gullible investors to buy our stock."
Right.
The one metric you'd want to see is going in the wrong direction – user growth is decelerating.
So now what?
IPOs Are a Rigged Game You Don't Want to Play
When I came into this business more than 35 years ago, companies with legitimate business models and real cash flow went public because they needed additional capital to grow already viable operations.
Now companies go public because they've got an idea they hope to "monetize." More often than not, they're huge money losers hoping to "cash out" on your dime – like Snap has.
Back then, going public was something you did when you wanted to stay in the game. Now, founders and early investors are looking to the individual investor as an exit – meaning you are going to make them worth billions instantly, even as they transfer all the risk of ownership to your wallet.
Case in point, 26-year-old Snap CEO E…
Join the conversation. Click here to jump to comments…
About the Author
Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs High Velocity Profits, which aims to get in, target gains, and get out clean. In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.
As a Money Map subscriber for many years, I have come to greatly respect your stock and industry picking ability. T Davis MD