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Three’s Company: Snap Inc. vs Facebook vs Wall Street

August 4, 2017

Guest Article By: Brandon Sardelis

Everyone reading this article has Snapchat, right? We all know the filters, geo-tags, chat, and story telling features, but do any of you know about the numbers behind Snapchat and why the slick entertainment app is going through one of it’s toughest tests for stock-market survival yet?

If you have an eye for capitalism you may have noticed that Snapchat’s stock-value has been cut in half since it’s initial IPO in March. Cue bullish investors? You would think so, right? But there’s plenty reason for pessimism in the eyes of a bear investors on Wall Street to short the stock, and here are the reasons why.

More than 1 billion shares are speculated to flood the market in the next few weeks because Snapchat’s 180-day initial public offering lockup will be expired. The lockup prevented any investor who bought in early on Snapchat to sell their shares. Now that the shackles are off and the market is free, investors are speculating that a stock flood could wash away Snapchat’s value.

So what does that mean? We’re all going to still use Snapchat right? Well from a financial perspective it could mean that Instagram is going to try and take another kill shot at Snapchat soon. In the last year, Instagram took a huge portion of the story-telling market and now that Snapchat is treading water, they may try and finish the job.

When Facebook went public, it was much bigger than Snapchat, with more than 500m daily active users against 166m for Snap. Facebook was profitable during it’s IPO, while on the other hand Snap has been burning cash.

 Even as Facebook was falling in stock value during it’s first year on the public market, it was signing up new users at a faster rate than Snapchat, and was actually profiting from them.

So is Snapchat done? No, not yet. There is room for optimism. During the first quarter of 2017, advertising revenues have increased four-fold and that’s what matters. Even though analysts are freaking out about a slowdown in user growth this year from Instagram’s emergence in the story-telling market, I always like to think that competition drives innovation. This battle for supremacy between Snapchat and FB in my opinion will create wonderful things to come for both companies.

At the end of the day there can only be one winner between FB and Snapchat, but in my opinion the competitive natures of the market will force innovation as a survival mechanism. This will ultimately cause Snapchat to thrive in the years to come. So in summary, if you’re a bull investor who’s not frightened by potential share flood and a slow down in new user growth, then now could be the time to invest. Until then get your popcorn get ready and enjoy the fireworks.

 

Brandon Sardelis is a Commerce graduate from Dalhousie University. He is currently travelling abroad for the purpose of leisure and self-discovery. In his spare time he enjoys playing music, volunteering at festivals, playing sports and reading about the world of finance. Connect with him on Instagram, LinkedIn, and Facebook.

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