Snap Inc. (NYSE: SNAP), commonly referred to as Snapchat, has been quite the disappointment after going public in 2017. Those familiar with cutting edge technology and the latest apps are well aware of Snapchat’s popularity amongst tech-obsessed youngsters. However, few could have predicted Snapchat would be the bedrock of a publicly traded company.
Though Snap’s stock has fallen from its initial price of $27 all the way down to $13 and change, it is showing signs of a rebound. Snap has climbed steadily since mid-July. Investors are now questioning whether Snap will become a legitimate business with staying power or if its premier service, Snapchat, is simply a fad.
Snap is a camera and technology company located in Venice, California. The company’s primary offering is the aforementioned Snapchat. Snap also offers Spectacles, Zenly and Bitmoji. The logic in rebranding Snapchat to simply Snap is to make it clear to prospective investors and customers the company offers more than the insanely popular Snapchat service.
In particular, Snap is attempting to highlight its Spectacles product. Spectacles hit the market back in November of 2016. These smart glasses connect to Snapchat accounts to record video that can be adjusted in highly nuanced ways. Snap partnered with Turner Broadcasting system a month later to add Turner properties to Snapchat’s service. The two companies work in unison to create original content. Snap is also the joint owner of a TV studio with NBCUniversal.
The question is whether Snap can succeed based on the popularity of its app or whether the company has a legitimate business with products that have true staying power. It appears as though the wildly popular Snapchat app will stand the test of time. This mobile image messaging app is used by millennials, generation Z and even some middle-aged adults. Snapchat’s success has fueled takeover rumors for the past-half decade.
Those who bought Snap shares when the company went public back in 2017 have suffered a significant loss. Investors who waited until the last couple of months to purchase the stock have made out like bandits. Snap is up nearly 30% since its decline following underwhelming results in the first quarter of 2018. It appears as though investors have some confidence in the stock yet many are unwilling to hold Snap for the long haul as the company’s success is too closely tied to its Snapchat app.
Flip the station to CNBC, and there is a good chance one of the network’s stock market analysts will bring up Snap. There is strong buzz around this company, primarily because it is a takeover target. Tech companies ranging from Google to Facebook and beyond have an interest in acquiring it as an asset. In fact, Facebook founder and CEO Mark Zuckerberg attempted to do exactly this back in 2014. According to Business Insider, Google executives had internal discussions about purchasing Snap for $30 billion in the early months of 2016.
Snap is still ripe for a takeover in the summer of 2018. The question is which tech company is willing to make a reasonable offer, and when that offer will be made.
Snap’s premier product, Snapchat, is no longer the idiosyncratic offering it was a few years ago. The market has responded in the form of stiff competition provided by Facebook and Instagram — the latter of which has amassed more than a billion active users per month. It was only a matter of time until Snapchat lost market share. At the moment, Snap is down about 50% from its initial public offering price, yet the company is still overvalued. Snap trades at more than 10 times its estimated sales for 2019. Investors should not gloss over the fact that Snap had a net loss of nearly $400 million this past quarter. It appears as though Snap will be in the red for some time to come.
Snap shareholders should sell a portion of their stake this summer. It makes sense to retain a position in Snap just in case company executives warm up to takeover bids. The bottom line is Snap is more of an app-centered company. Those who do not own Snap should give serious consideration to shorting the stock until takeover rumors resurface.
Regards,
Ethan Warrick
Editor
Wealth Authority
