Snap Inc. bites the dust after Successful Offering
There’s nothing as hard to maintain as a good performance for a tech company. If someone comes up with something new, you lose your ground. That, in turn, translates to you losing money. You get a negative review, suddenly everyone becomes wary of using your tech so again, you lose money. Companies like Veritone have seen the downside of being a tech company on the losing side. Snap Inc. has now started raising a few eyebrows.
Snap Inc. (NYSE: SNAP) the attention of the whole of Wall Street back in February. Pricing its IPO at $3.4 billion, it became one of few tech companies to ever break the threshold of a $2 billion IPO. Other tech firms that have been able to do this are Alibaba and Facebook. After Snap had priced its IPO, many investment firms and investors laid their bets on how the company would perform. At one point the argument was whether Snap would be like Facebook or Twitter post-IPO. Last week, everyone finally got their answer.
Make no mistake, Snap Inc. had glowing reviews in the beginning. What’s not to like about a company that has 158 million users and an excellent projection for growth? In fact, these two points are what the California-based firm capitalized on during its IPO campaign. Well, those two points plus the fact that Snap Inc. turned a profit in 2016 despite the 68% to 42% decline in profit for most tech companies. Snap Inc. used these points to get investors to buy shares in the company that it made a +44% open and had its shares trading at +5% in the weeks after that.
Last week, Wall Street analysts who had previously been touting a no-buy option for Snap Inc. remarked that the company was performing poorly now and would suffer more losses in the foreseeable future. In time with that analysts from CFRA Research and Zacks Investment Research added the bad news that the company’s stock was suffering from short-interest. With that analysis Snap’s bullish rating has just fallen to a bear rating.
As you can expect, Snap Inc.’s share price took a dive with the announcement. By the close of business day on Friday, Snap’s shares were trading in the red zone at -1.33% of the IPO price. Even with the company being valued at $24 billion by Dealogic, the losses will be great before the company can break even.
Snap Inc. is facing the losses for two reasons. The first is that the firm’s Snapchat messaging app has stopped bringing in consumers fast, so the company’s growth rate is declining steadily. The app’s largest consumer base is the millennial generation. This generation likes new things. Because the app has not upgraded its features in a long time, their consumers have switched to more interesting options. Reason number two is related to the first. While Snap has been stagnating, other apps have been upgrading. Before the IPO, Snap Inc. CEO Evan Spiegel had assured investors that Snapchat’s features were unique enough to keep it in the market. It turns out he was wrong. Instagram has a few new features it copied from Snapchat, and that might only be the beginning.