Snap – the owner of ephemeral messaging app Snapchat – is "total junk", worth a small fraction of its current valuation, and should be avoided by investors when it goes public later this year, one analyst has warned.
"We are at the tail end of the social media boom. Novelty is giving way to fatigue," Trip Chowdhry, managing director of equity research at Global Equities Research, wrote in a note on Sunday.
"Fundamental investors should avoid the IPO. Snapchat is a total junk, hyper-inflated."
Chowdhry is a well-known bear on many technology stocks and in December issued a note suggesting Twitter (TWTR) is "toast" as a company with the stock not even worth $10 .
His negative sentiment is echoed in Snap and said the company is not worth $500 million, even calling this valuation "generous". Snap is reportedly set to go public this year in an initial public offering (IPO) that could value the firm as high as $25 billion.
Chowdhry said investors should avoid buying shares in the firm and speculative traders who decide to play the IPO should get out in the first hour.
The analyst gives several reasons for his bearish call. Firstly, Chowdhry said "durability is absent" with the company, citing Groupon (GRPN), games maker Zynga (ZNGA), camera firm GoPro (GPRO), and fitness wearable company Fitbit (FIT) as examples of firms that have struggled.
But Snapchat is known for having some very attractive aspects of the company, particularly the attraction of millennials to its platform and engagement with videos. When asked by CNBC if he thinks this makes it different from other social media companies, the analyst said the previous companies he mentioned all had their own "uniqueness" too but still struggled.
"All the junk IPOs I mentioned had their uniqueness too. Remember Groupon – group buying; Zynga - social gaming; GoPro – action photography and a media company and drone company. These are all instruments of blowing hot air into a company before a collapse," Chowdhry told CNBC by email.
Social media advertising spend is also not getting consolidated but being spread across several players while total ad spend is growing at a slow rate, the analyst noted, saying that the industry is in "zero-sum economics". This is another reason investors should be weary.
Global media owners' net ad sales are forecast to grow by 3.6 percent in 2017, compared to 5.7 percent in 2016, according to a report by MAGNA, IPG Mediabrands' research arm.
But Chowdhry's views appear to be a minority view amid a lot of excitement for Snap's IPO and some analysts have questioned his call that the company is not worth $500 million.