In This Article:
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Snap (SNAP) stock collapsed by 43% after warning that growth was slowing.
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Snap has never made money. It warned that EBITDA will fall below estimates.
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It’s dead money until it convinces markets its reinvention is real.
Source: dennizn / Shutterstock.com
Snap (NYSE:SNAP) stock collapsed by 43% after CEO Evan Spiegel warned regulators that growth was slowing.
Spiegel’s note crashed the whole internet sector on May 23. Pinterest (NYSE:PINS) fell by almost 24%, Meta Platforms (NASDAQ:FB) by over 7% and even mighty Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), parent of Google, lost 5%.
It was indeed a bad day at the dog track.
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But is Snap really a dog? Even at its May 25 price of $14 per share, it’s selling for almost 6 times last year’s revenue of $4.1 billion. More important, it’s still unprofitable. Maybe that’s fine for a company growing at 50% per year. But if it’s not — and Spiegel admits it’s not — it’s inexcusable.
| Ticker | Company | Current Price |
| Snap Inc | $14.64 |
The Story Behind SNAP Stock
Snap’s Snapchat was developed in 2011 as a more-immediate version of Facebook, only with disappearing ink. The idea was that messages and pictures would only be available for a short time, then be erased.
As it became Meta Platforms, Facebook eventually copied all that with its WhatsApp, including the disappearing part. What kept Snap in the game was widespread disillusion with Facebook. Spiegel was seen as a younger and hipper Mark Zuckerberg.
But Snapchat is also open to abuse. Drug dealers have used it to spy on their victims. Users have sued it for scanning faces without permission. A Missouri man who used it to post pictures of himself with guns and drugs is headed to prison.
Worse, Snap’s growth warning may extend to the whole sector. If ad sales are slowing, then the economy is slowing. Thus, according to Bank of America analysts, the economy is falling off a cliff into recession. “Inflation causes recessions,” the bank wrote. (I was alive in the 1970s. Economic growth averaged over 3% during the Carter Administration).
The Snap Future
Snap’s bigger problem is it’s a one-trick pony, an application for sharing pictures and short videos.
Snapchat has tried to evolve with hardware products like Spectacles, a set of picture-taking sunglasses, and Pixy, a picture-taking drone. But it’s still an ad-based communication company — take a picture, share a picture and make it disappear.
Snap is now trying to convince Wall Street that it can be a shopping app … an e-commerce play. Snap bulls insist that the company was also left for dead in 2018, but the stock bounced back. And the number of Snapchat users is still growing.