Snap, the parent company of social media app Snapchat debuted on Wall Street a little over a month ago and the results continue to be underwhelming. The stock IPO’d at $17 and climbed to $30 but has since fallen back to around $20 and shows little sign of recovering.
Why is Snap struggling? I think the answer is simple – Wall Street can’t identify what Snap is and Snap itself isn’t helping Wall Street understand what it is.
Putting all of the traditional red flag factors aside; struggling user growth, cash burn rate, huge revenue losses and unrealistic growth targets, Snap is not honest with itself with what the company actually is trying to be. Co-founder and CEO Evan Spiegel has repeatedly said that Snap is different than your traditional social network because it is a “camera company” yet they’ve even tried to enter gaming as a source of revenue. While that statement may sound reasonable as the company does create special lenses and filters it does not differentiate Snap from the likes of Instagram who can say similar statements
Now Evan Spiegel didn’t say that Snap would actually sell physical cameras outside of the Snap Spectacles that launched last year but if Snap continues to build upon the idea of creating cameras it presents a new level of problems for investors to consider. Let’s put aside the fact that cameras as a whole are a dying industry due to the rise of smartphones, if Snap decides to start building and producing cameras it would likely burn through its cash even faster with low-margin hardware business.
“Snap is in a tight spot”, says Ray Spoljaric former Wall Street investor and now founder of ComfortCam, “I’ve been following the company since the early days and they seem to lack a true identity. It’s an app and it’s a social platform. That’s how The Street sees it and you can be successful as those things but when your CEO claims that they are a camera company, that’s concerning.”
Wall Street’s handling of the Snap stock and other analysts agreeing with Mr. Spoljaric’s analysis are bad signs for the future of the company. Snap is looking like a company that went public before it had a solid roadmap towards profitability and in order to regain the trust of investors the company needs to re-evaluate itself and establish a clear vision that everyone can understand. Until then I’m looking for the stock to continue struggling and possibly even reach single digits.