By Adam Fraser
Tough times for Snapchat right now.
The cool kid on the block a couple of years ago is somewhat losing its shine, as the realities of life as a listed company kick in. The market will fund potential and brand for only so long before the numbers have to actually justify the underlying market cap.
A few recent headlines tell you all you need to know. Forbes discussed Why Snapchat’s Trainwreck Stock Will Never Have A Facebook Rebound, The LA Times this week reported Snap is ‘quickly running out of money,’ analyst says. The stock slides to a new low and, on a recent Recode podcast, influential Professor Scott Galloway stated “I believe this company is going out of business… Snap will not be an independent company by the end of 2019.”
The stock price has hit an all-time low of $6.59, with a market cap of (a still massive) $8.4bn. Compare this to the day of its IPO in early 2017 when the stock price opened at $24.
So what’s spooking the market? Another recent Forbes article dissected this, identifying a number of key issues:
- Snap’s daily users actually declined last results announcement, at 188m daily active users in Q2 vs 191m in Q1 (as the market likes to price social networks like media companies, any miss of market expectations in this area is harshly punished);
- Fierce competition from other social platforms, particularly Instagram which now over 1bn users, thus impacting demand for Snap’s inventory (the ease with which other platforms’ were able to copy Snapchat’s stories feature has been hugely damaging);
- Stock market analyst downgrades (a vicious circle as each feeds further negativity to the stock); and
- Key senior exec departures.
It’s not all doom and gloom of course. Snapchat has a very loyal, very active and very attractive user base, and it is continuing to innovate, most recently announcing a range of new scripted exclusive shows for its Discover map. Snap is a distinctive brand in its own right, and notwithstanding the failure of its Snapchat Spectacles, there is clearly retail potential within the platform.
The issue is not whether Snapchat is a “good business” (on any measure developing a platform with close to 200m users is a notable achievement), more whether its decision to IPO at a nosebleed valuation will be its Achilles heel. As Twitter learned, the public glare of the stock market, bringing a quarter by quarter focus, can be an uncomfortable place for a ‘teenager’ business to grow into adulthood.
The jury is very much out as to whether Snap can make it to sustainable profitability as a stand-alone business. The smart money seems to be increasingly thinking a takeover looks likely in 2019, with Google and Amazon identified as “most likely”.