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Will Snap Inc (SNAP) Succeed or Fall Out of Investors' Favor?
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Snap Inc. (SNAP - Free Report) , the parent company of social network, Snapchat, was off to a brilliant start on its debut. The company’s IPO was multiple times oversubscribed and shares soared 44% on the first day of trading. However, shares fell nearly 10% yesterday amid reports that the company has come under fire from several institutional investors
Snap Lands into Trouble with Institutional Investors
Investors aren’t happy with the company’s offering of 200 million Class A shares that carry no voting rights. Per a Business Insider report, they have “approached” stock index providers such as S&P Dow Jones Indices and MSCI Inc to prevent Snap and other such companies that offer shares without voting rights from getting incorporated into these benchmark indexes. The meeting is scheduled sometime this week.
Investors argue that the absence of voting rights completely bars a shareholder from speaking on issues like a company’s growth plans or compensation shelled out to executives. Business Insider also adds that if such a company is listed on any of the indices, “then managers of stock index portfolios will have to buy its shares and other investors, whose performance is tracked against such indexes, would likely follow suit.”
The absence of voting rights implies that the company does not intend to dilute its decision making power. Snap will have a three-tier share structure and founders Evan Spigel and Bobby Murphy will have maximum voting rights through the ownership of Class C shares, which carry 10 votes per share. The Class B shares carry one vote per share. Such form of corporate governance might prove detrimental for investors, especially when there is uncertainty about its future.
What’s Concerning Investors?
Snap Inc has been shunned by many Wall Street analysts for various reasons. Citing instances of Twitter Inc. , Groupon Inc and many others, analysts believe that Snap “will follow a pattern of hot, then cooling, tech IPOs.”
Reportedly, most analysts have initiated coverage on Snap with a “sell” rating. These analysts argue that Snap has already started seeing its average daily user growth rate slowdown. Plus, the company is yet to make profits. Though the company’s revenues are on the rise, losses are ballooning. Reportedly, in 2016, Snap’s revenues of $404.5 million were nearly six times higher than 2015 revenues but net loss for the year increased 38% to $514.6 million.
Moreover, since Snapchat has just one source of revenues i.e., advertising, which only began in Oct 2016, it may be a concern for investors. Also, it attracts a particular segment of the demography.
Analysts argue that teens are inclined to sudden changes in preferences. Media reports have quoted Snap “admitting” that increasing competition from big players like Facebook Inc , which have better resources, is a big threat as they can easily lure users to their platform.
In fact, Facebook outshines Snap in almost all aspects. The company enjoys a first mover advantage in the social media space with over 1.9 billion users from every segment of demography. It has a gargantuan base of over 1 billion DAUs compared with 158 million for Snap. Facebook presents a much larger canvas for advertisers than Snapchat. In fact, Facebook’s total addressable market (TAM) has been reported to be 80% bigger than that of Snap.
Also, Facebook through its Instagram application has started to emulate Snapchat features, which is a big threat for Snapchat. Analysts observe that Facebook can easily take chances by unveiling features that are similar to other social media services. This is because if these “inspired” features do not work, it can easily roll them back like it did previously with Poke, Slingshot and Bolt.
After all, platforms like Facebook, Instagram, WhatsApp and Messenger do have their own inherent features that will prevent the loss of users. If these “inspired” features become popular like Facebook Live, people will view it as an improvement over the inherent features. This will significantly cut down the risk of migration if Snapchat becomes popular going ahead.
An analyst was quoted saying “Good-enough features plus being the first app to offer them at scale in a market could succeed better than having the best features but showing up late.” Compared to Facebook’s worldwide popularity, Snap is mainly popular in the U.S and Canada. Apart from Facebook, Alphabet’s (GOOGL - Free Report) YouTube is another formidable opponent for ad dollars
Also, Snap’s valuation is nosebleed. At nearly 60 times its revenues, analysts remain wary as it is too high compared to existing and future growth prospects.
Wait, Not All Is Lost!!
However, there are some analysts who aren’t so negative on the stock. They believe that product innovations might help Snap to sustain the momentum.
The best part about the company is that it does not follow the usual advertising model of charging per click, rather it charges advertisers per day. The consistently expanding daily active user base has been attracting more and more consumers.
Apart from this, the company’s Snapchat Discover feature has enhanced its picture and video library, thereby attracting more and more advertisers. The feature also allows the company to partner with major events like the Oscars and Super Bowl. Discover currently accounts for a majority of the company’s advertising revenues.
At the Morgan Stanley conference held a couple of months back, CEO Spiegel was quoted by media reports as saying that 50% of its new user base now comprises users over the age of 25. Plus, Snapchat, in order to diversify its revenue base, has started selling Snapchat spectacles worth $130.
Conclusion
Snap is currently stealing all the limelight. It remains to be seen whether the company can keep the excitement alive by providing a more immersive experience. We can only hope that its success will not be “ephemeral” like its messaging features.
Want to learn more about Snapchat stock? Check out our recent podcast on SNAP with an IPO expert below!
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Will Snap Inc (SNAP) Succeed or Fall Out of Investors' Favor?
Snap Inc. (SNAP - Free Report) , the parent company of social network, Snapchat, was off to a brilliant start on its debut. The company’s IPO was multiple times oversubscribed and shares soared 44% on the first day of trading. However, shares fell nearly 10% yesterday amid reports that the company has come under fire from several institutional investors
Snap Lands into Trouble with Institutional Investors
Investors aren’t happy with the company’s offering of 200 million Class A shares that carry no voting rights. Per a Business Insider report, they have “approached” stock index providers such as S&P Dow Jones Indices and MSCI Inc to prevent Snap and other such companies that offer shares without voting rights from getting incorporated into these benchmark indexes. The meeting is scheduled sometime this week.
Investors argue that the absence of voting rights completely bars a shareholder from speaking on issues like a company’s growth plans or compensation shelled out to executives. Business Insider also adds that if such a company is listed on any of the indices, “then managers of stock index portfolios will have to buy its shares and other investors, whose performance is tracked against such indexes, would likely follow suit.”
The absence of voting rights implies that the company does not intend to dilute its decision making power. Snap will have a three-tier share structure and founders Evan Spigel and Bobby Murphy will have maximum voting rights through the ownership of Class C shares, which carry 10 votes per share. The Class B shares carry one vote per share. Such form of corporate governance might prove detrimental for investors, especially when there is uncertainty about its future.
What’s Concerning Investors?
Snap Inc has been shunned by many Wall Street analysts for various reasons. Citing instances of Twitter Inc. , Groupon Inc and many others, analysts believe that Snap “will follow a pattern of hot, then cooling, tech IPOs.”
Reportedly, most analysts have initiated coverage on Snap with a “sell” rating. These analysts argue that Snap has already started seeing its average daily user growth rate slowdown. Plus, the company is yet to make profits. Though the company’s revenues are on the rise, losses are ballooning. Reportedly, in 2016, Snap’s revenues of $404.5 million were nearly six times higher than 2015 revenues but net loss for the year increased 38% to $514.6 million.
Moreover, since Snapchat has just one source of revenues i.e., advertising, which only began in Oct 2016, it may be a concern for investors. Also, it attracts a particular segment of the demography.
Analysts argue that teens are inclined to sudden changes in preferences. Media reports have quoted Snap “admitting” that increasing competition from big players like Facebook Inc , which have better resources, is a big threat as they can easily lure users to their platform.
In fact, Facebook outshines Snap in almost all aspects. The company enjoys a first mover advantage in the social media space with over 1.9 billion users from every segment of demography. It has a gargantuan base of over 1 billion DAUs compared with 158 million for Snap. Facebook presents a much larger canvas for advertisers than Snapchat. In fact, Facebook’s total addressable market (TAM) has been reported to be 80% bigger than that of Snap.
Also, Facebook through its Instagram application has started to emulate Snapchat features, which is a big threat for Snapchat. Analysts observe that Facebook can easily take chances by unveiling features that are similar to other social media services. This is because if these “inspired” features do not work, it can easily roll them back like it did previously with Poke, Slingshot and Bolt.
After all, platforms like Facebook, Instagram, WhatsApp and Messenger do have their own inherent features that will prevent the loss of users. If these “inspired” features become popular like Facebook Live, people will view it as an improvement over the inherent features. This will significantly cut down the risk of migration if Snapchat becomes popular going ahead.
An analyst was quoted saying “Good-enough features plus being the first app to offer them at scale in a market could succeed better than having the best features but showing up late.” Compared to Facebook’s worldwide popularity, Snap is mainly popular in the U.S and Canada. Apart from Facebook, Alphabet’s (GOOGL - Free Report) YouTube is another formidable opponent for ad dollars
Also, Snap’s valuation is nosebleed. At nearly 60 times its revenues, analysts remain wary as it is too high compared to existing and future growth prospects.
Wait, Not All Is Lost!!
However, there are some analysts who aren’t so negative on the stock. They believe that product innovations might help Snap to sustain the momentum.
The best part about the company is that it does not follow the usual advertising model of charging per click, rather it charges advertisers per day. The consistently expanding daily active user base has been attracting more and more consumers.
Apart from this, the company’s Snapchat Discover feature has enhanced its picture and video library, thereby attracting more and more advertisers. The feature also allows the company to partner with major events like the Oscars and Super Bowl. Discover currently accounts for a majority of the company’s advertising revenues.
At the Morgan Stanley conference held a couple of months back, CEO Spiegel was quoted by media reports as saying that 50% of its new user base now comprises users over the age of 25. Plus, Snapchat, in order to diversify its revenue base, has started selling Snapchat spectacles worth $130.
Conclusion
Snap is currently stealing all the limelight. It remains to be seen whether the company can keep the excitement alive by providing a more immersive experience. We can only hope that its success will not be “ephemeral” like its messaging features.
Want to learn more about Snapchat stock? Check out our recent podcast on SNAP with an IPO expert below!
8 Stocks with Huge Profit Potential Just released:
Driverless Cars: Your Roadmap to Mega-Profits Today. In this latest Special Report, Zacks’ Aggressive Growth Strategist Brian Bolan explores a full-blown technological breakthrough in the making – autonomous cars. He also spotlights 8 stocks with tremendous gain potential to feed off this phenomenon. Click to see the stocks right now >>