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Snap Stock: Should You Be Investing in It? [DETAILS]

Posted On August 15, 2017 3:18 pm
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A Snap Inc. banner on Wall Street in New York

Snap stock enjoyed a rare relief on Monday after its employees didn’t sell their shares even after getting the permission from the company (expiration of the lockup period) to do so for the first time since the IPO. Snap Inc (NYSE:SNAP) surged by a whopping 6%. However, there is no end in sight to Snap’s problems.

The company posted worse-than-expected second quarter results earlier this month. Snap Inc (NYSE:SNAP)’s loss in the period came in at $0.16 per share, below the analysts’ estimate of $0.15, while revenue in the period came in at $181.67 million versus the consensus estimate of $186.22 million. Snapchat’s daily active users in the quarter increased to just 173 million, compared to 143 million in the second quarter of 2016.

This user base is paltry when compared to Facebook’s 2 billion users. Snapchat started to decline after Instagram launch ‘Stories’ feature. Even though this feature was mostly copied from Snapchat, Instagram users responded actively to the new addition, while Snapchat user growth started to falter. Instagram has 250 million daily active users. Latest reports also show that advertises prefer using Instagram as compared to Snapchat.

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Almost every investment firm slashed its price target for Snap Inc (NYSE:SNAP) shares after the second quarter report. Analysts now fear that that stock will decline to single digits.

Snap Inc (NYSE:SNAP)’s GAAP loss in the second quarter came in at $443 million, which means that every single dollar of revenue costed Snap $2.44. This shows that Snap has an unsustainable business model.  Snap’s 2018 revenue estimate has so far declined by $300 million to $1.7 billion. Snap’s cash burn was $230 million in the second quarter, as the company desperately keeps making acquisitions for growth.

ARPU (average revenue per user) in the second quarter increased to $1.05 from $0.90 reported in the first quarter.  GAAP gross margins came in at 16%, much better than -9% reported in the first quarter.

Famous investors are bailing out of Snap stock. Recent SEC filings show that Dan Loeb’s Third Point Capital, Moore Capital, Jana Partners, and Temasek Holdings have sold their stakes in Snap. Similarly, David Tepper’s Appaloosa Management sold 100,000 Snap shares in the second quarter.  

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