Financial News

Should You Start Buying Snap Stock?

Should You Start Buying Snap Stock?

By Ryan Velez

Snap, the company that makes the popular social media app Snapchat, has now become a publically traded company on the stock market, and Black Enterprise reports that at the moment, it’s stock price is overperforming. The price opened at $24 a share, a number even higher than many analysts’ estimated, which ranged from $14–$18. This IPO also stands to make big money for the founders of Snapchat, with CNBC projecting that Snap’s co-founders, CEO Evan Spiegel, and chief technology officer Bobby Murphy, “stand to make at least $384 million each.”

If you look at the bare numbers, it seems like anyone would want to get their chance at getting part of all this hype. After all, Snap is valued at $25 billion, and Snapchat has a massive user-base to fuel a potential investment. The Snapchat user-base numbers 37 million monthly active users in the U.S. alone. As of May 2016, the platform has also generated 10 billion mobile video views per day. While Snap seems like the hot stock to get in on, the analysts of Seeking Alpha see things differently.

The main reasons they are passing over Snap stock are twofold. The first is a series of questions they have regarding “current business model, user/rev growth rates, and demographic saturation in the U.S.” The second is that despite Snap’s inflated valuation, they’re not sure that it can obtain the needed growth to lead up to this hype. Part of the reason for this is that Snap is not a creator of tech. Instead, they leverage tech to create a social media platform. Snap is now trying to rebrand itself as a camera company to address this issue, having created Snap Spectacles, but they have yet to create a formal category, raising eyebrows as to whether or not they can truly compete in that space.

Perhaps one of the most telling reasons why you may want to avoid buying Snap stock is from the struggles of Twitter when it comes to monetizing. Recode puts together a stark comparison between the two: “Their revenue totals and number of employees are roughly the same. Neither company is profitable. And both companies have modest user bases, at least compared to Facebook.” This isn’t to say that tech startups that go IPO are a poor decision when it comes to purchasing stock. However, Snap may not be the horse to bet on when it comes to continued financial success.

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