SNAP IPO Failure a Great Lesson in Risk and Changing Trends

Social media company Snap $SNAP, owner of Snapchat has been a great reminder of risk, herd mentality and like MySpace the perils of betting on social media longevity. The employee lockup expiration Monday saw a new record low trade at $11.28 on Monday, 33% below its IPO price of $17.

Social media stock Snap $SNAP, the owner of Snapchat has been a great reminder of risk, herd mentality and like MySpace the perils of betting on social media longevity. It is a reminder, regardless of hype you can’t drop your guard in any way. The employee lockup expiration Monday saw a new record low trade at  $11.28 on Monday, 33% below its IPO price of $17.

Snapchat Logo

With the lockup expiration, an estimated 800 million Snap shares became available for trading Monday, including 422 million shares held by Snap Chief Executive Evan Spiegel and co-founder Robert Murphy. Both Spiegel and Murphy said they would not sell any stock this year.

This is not an insignificant move, $SNAP was the biggest initial public offering since Facebook (FB) and Alibaba (BABA). Facebook came public in May 2012 and Alibaba in September 2014. It seems Facebook is picking at a rotting casket picking all the good features out of snapchat and adding them to it’s own services. Such an example is trending ‘at the moment’ technology with Facebook was already copying and improving it. Again think back to MySpace and so many others.

So how bad were those earnings?

  • Adjusted EPS: Loss of 16 cents per share vs. loss of 14 cents per share expected by a Thomson Reuters consensus estimate.
  • Revenue: $181.7 million vs. $186.2 million expected by a Thomson Reuters consensus estimate.
  • Daily active users (DAUs): 173 million vs. 175.2 million expected by a StreetAccount estimate.
  • Average revenue per user (ARPU): $1.05 vs $1.07 expected by FactSet.

Second quarterly earnings released on Thursday missed estimates on all the key metrics. Snap said second-quarter revenue rose 153% to $181.7 million while it posted a loss at 16 cents a share, with revenue missing the consensus estimate of $189 million. Adjusted earnings missed analysts 10-cent loss.

Snap said it added 7.3 million daily active users missing the consensus of 10 million but up 4% from the prior quarter. From the year-ago period, Snap said daily users rose 21% to 173 million, an increase of 30.5 million, but below forecasts of 175 million. Average revenue per user climbed to $1.05, again also weaker than the $1.07 expected.

This has not been a surprise here, after Q1 earnings TC analysts noted “The worrying sign, remember this is all about dominance and market share Snapchat’s user growth slowed to its lowest pace in years. Snap added 8 million new daily users the first three months of the year, year-on-year growth of 36%. Momentum has slowed, this time last year, Snapchat was growing its DAUs by 52%. Instagram Stories recently outpaced Snapchat by reaching 200 million daily users.”

Second quarter results clearly show Instagram is ploughing ahead Instagram reported its daily user base touched 250 million in June 2017 vs. 173 million reported by $SNAP.

Remember this risk ignored?

Another Risk – no-voting rights

Snap’s IPO Class A shares sold in this offering have no voting power. This is a move by management that has never been seen before in any other IPO. A gamble that paid off with the hype of record stock market levels and the hype of the social media aspect. (the herd don’t care about details)

Furthermore 50 million shares of the offering are be subject to a one-year lockup agreement. This eliminates the ability to sell on the first day and the traditional selling pressure by taking a quarter of the float off the market. Here we are with the lock up expiration and we are at all time lows.

First Day IPO

Snap shares closed their first day of trading up 44 percent at $24.48 a share on more than 200 million shares, the entire size of the offering changed hands over the course of the day, accounting for roughly 10 percent of the total volume of trading on the New York Stock Exchange that Thursday. The stock opened shortly before 11:20 a.m. on Thursday in New York, and started trading at $24 a share, rising 41.2 percent from its pricing at the open.

The company, trading under the ticker SNAP, priced its public offering at $17 a share on Wednesday. Share prices rose as high as $26.05, according to FactSet, and fell as low as $23.50.

Source: AlphaStreet, TradersCommunity

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