Snapchat Stock Is Still Not A Buy & Here’s Why
When will the selloffs end?
Snapchat and its parent company SNAP (NYSE: SNAP) had a tough 2018 and it seems like the challenges that SNAP stock faced aren’t going anywhere. The main problem that can be seen with Snapchat is that is has no other products apart from its main app.
SNAP Stock Is Not A Buy For The Foreseeable Future
Since 2018, the losses have piled up for Snap, which was made worse as many top-executives also left the company. Not to mention active users also dropped this year.
These challenges have brought investor confidence in SNAP stock at an all-time low, causing mass selloffs. The selloffs that Snapchat stock has experienced is pushing SNAP near to penny-stock levels. When taking all of these factors into consideration, it is clear that SNAP stock isn’t a wise buy for short-term or long-term gains.
December has been an incredibly hard month for the company, Snapchat stock price fell below $5 on December 20th for the first time. Eventually, Snap’s stock price did recover but the declines highlight fundamental issues with the company.
Unlike the other major social media platforms, Snapchat never appealed to a wider age demographic unlike Facebook, Twitter and Instagram. Once Instagram implemented Snapchat’s story feature, things got worse. Instagram now boasts more daily active users than Snapchat.
SNAP Stock & Poor Management
Despite all of the issues that Snapchat faces mentioned previously, executive departures is high on the list of worries for investors. Departures are not the only problems that Snapchat faces with its executives, CEO Evan Spiegel has been under fire recently for hindering Snapchat’s growth and SNAP stock. It is undeniable that Spiegel and Snapchat’s other founder, Robert Murphy, are creative geniuses. However, their creative talents have not translated into managerial prowess.
Spiegel denied Facebook’s offer to buy Snapchat for $3 billion back in 2013, an offer he may regret not making. Currently, Snapchat’s value by market cap sits around $7 billion, which means that Facebook’s offer was undervalued. Although, it is unclear if Snapchat will be able to stay above a $3 billion market cap for much longer.
Arguably the most significant executive departure came from Snapchat’s CFO, Drew Vollero, who allegedly left because he thought SNAP had spend an excessive amount of money on Spectacles, which have performed poorly on the retail market.
The worst mistake that Snap’s management made was keeping the updated platform redesign despite hallowing reviews from users. Snapchat drastically updated the app’s interface in February, a move which key demographics did not appreciate. Since the updated interface launched, Snapchat’s daily active users has fallen every quarter since.
Snapchat Stock Forecast
These metrics alone signify harder times coming for SNAP and Snapchat as a tech company. SNAP is set to break even this quarter, although their average annual losses are expected to carry on well into 2021. The prospect of shorting Snapchat stock may seem enticing, but due to the markets current volatility, SNAP may see short-term rallies going into next year.
To conclude, SNAP stock should be avoided for months if not years to come. Snapchat user’s complaints are falling on executives that are unwilling to listen, which is a significant enough reason to sell Snapchat shares before it completely tanks. If that isn’t a strong enough reason, falling daily active users and financial losses should do it.
If Snapchat was trading at cheaper levels, then some investors would be able to ignore these issues. Although, SNAP is still overvalued and is trading at a significantly price-to-sales ratio.
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