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Snapchat Stock Overheating?


SNAP, Snap Snapchat IPO Overheating

SNAP is trading at multiple times the metrics of its main competitor FB.

Released on Saturday, March 4, 2017, 10:40 PM ET
by Email Russ UrbanContact SpeculatingStocks

Pittsburgh, PA (SpeculatingStocks) - Snap Inc. (NYSE:SNAP), parent company of Snapchat, had by all accounts an extremely successful initial public offering, IPO last Thursday. SNAP shares first priced at $17 and quickly jumped to approximately $26 a share Thursday. On Friday, SNAP shares reached a high of $29.44 before closing at $27.09. This puts SNAP up 59.3% since from its IPO offering price. Remember, it's not like the offering price is a bargain as companies look to fill their coffers during an initial public offering. Investment banks don't want to offer shares too low or too high, it's a balancing act.

SNAP now sits at a market cap of $31.35 billion. That's almost 3 times the market cap of Twitter, Inc. (NYSE:TWTR). Twitter has had its fair share of issues, but they are both strong on mobile along with Facebook, Inc. (NASDAQ:FB). FB is far and beyond the best company at monetizing its massive user base and just one reason FB trades at a market cap of $396.3 billion.

SNAP lost $514.6 million last year, so it is far from profitable, so the company has a far way to go before profitability even enters the equation. Snap Inc. generated revenue last year of $404 million. That means SNAP is trading at 77.5 times sales. FB trades at 14.3 times sales on revenue of $27.64 billion last year and net income of $10.19 billion.

SNAP is extremely overvalued at this time and we could see the fallout be worse than the Facebook IPO, after FB dropped from over $40 a share on its IPO day to under $20 within three month's time. SNAP is being traded higher like it's the next Facebook, and that's a pipe dream right now with a lot of work ahead if it is to pull that off.

At the end of last year, Snapchat had 158 million users, that's about half of Twitter's users and Snapchat could have a similarly hard time monetizing their user base. Worse off, growth could even stall out here for Snapchat. There's a reason Snapchat has warned that their competitors have more money, resources, and users . Facebook is also cutthroat in how it is copying Snapchat features.

SNAP was already downgraded to Underweight by Atlantic Equities on Friday afternoon. It makes a lot of sense because SNAP is severely overheated, and the shorts are about to rush in this week. For now, if investors want to play a downturn in SNAP shares, they would have to short SNAP. Options are expected to pop up on Friday, March 10th and that would give investors the ability to play a downturn with Put options.

SNAP is going against a behemoth in Facebook with their namesake app, Instagram app and WhatsApp app, all with multiple times the users of Snapchat. SNAP could fall out of favor quickly with investors if it gets branded as the next Twitter, and loses its momentum and positive perception with the public.

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⇒ About the Author of this News Article:

Russ Urban has been following the stock market for over 17 years and holds a Bachelor's Degree in Finance. From a young age, he watched CNBC with a keen eye and became obsessed with the market and technology. Russ Urban has written hundreds of stock articles and stock picks through the years since he founded, Inc. in 2006 and holds strong faith in the power of the markets and capitalism.

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