Snap Inc, parent company of Snapchat, IPO’d last week and is currently (at the time of writing) sitting at a market cap of $26.09B. Following great success of a number of other significant social media giants (eg Facebook, Twitter) on the face of it Snapchat seems to be following in these steps to become another social media behemoth of the stock exchange.
At the moment Snap is a hype stock, so it’s incredibly difficult to predict it’s swing on a daily and intra-weekly basis. However, I think the sensible position (at least looking months or low years) is short – and my instincts say that Snap will probably tumble to a sub $20B market cap sometime within the next few months (by Q3 2017 latest) and never return above current levels.
Their biggest issue I believe is fundamental, their revenue model is dependant on advertising and by nature Snapchat is ephemeral. In contrast to Facebook, who essentially managed to create a product revolving around how much personal data you can give them, Snapchat’s messaging is ephemeral and not suited towards data collection. I believe the long-term product viability would have gained significantly from the original rejected Facebook acquisition offer (although, evidently, they made the right decision by rejecting it).
Ultimately, this means that advertising on Snapchat lacks targetability and is primarily geared towards branding advertisement. There’s nothing inherently wrong with this, many huge brands are willing to dump serious money into branding advertisements, but it also means that Snapchat only holds value while it is a ‘popular brand’. Historically, especially within the key target demographic of Snapchat (Generation Z, young Millennials), brands seriously struggle to ‘remain popular’ for people in this age range.
There are also a number of more minor compounding issues but I believe that these issues will seriously damage the long-term viability of Snap Inc.