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It seems that Snap stock has all but given up the ghost. The social network was worth $31 billion after its public debut two years ago. Now it’s less than $8 billion.
The stock took another tumble Wednesday, dropping 13 percent in its worst performance since May, after the hasty exit of Chief Financial Officer Tim Stone just eight months into his role.
Even though U.S. stock futures were trading higher just few days ago as traders return from the weekend in a buying mood. Snapchat then had a big hold on the demographic that advertisers are most interested in – high school and college kids. This means the company has no lack of advertisers. While their user base hasn’t grown as fast as some competitors like Facebook, the social media application is preferred by a growing subset of youth.
Erin Gibbs, portfolio manager at S&P Global, says watch out below, the worst is yet to come. She said:
“We do not see this as necessarily the bottom. The fact that your CFO is walking away from 80 percent of the stock that he got as a signing bonus is a clear indication of how he thinks the company is going to go.”
That’s not all that has Gibbs worried about Snapchat’s parent company. She added:
“The earnings estimates are actually going even lower in the past month and they weren’t that stellar to begin with.”
Stacey Gilbert, market strategist at Susquehanna, says her firm also has a negative view on the social network. She said:
“Our internet analyst Shyam Patel had a great call on this. His concerns continue to be that ad buyers are not seeing the return on investments that other platforms like Facebook and Instagram are doing and users are fleeing.”
Options activity suggest Gibbs and Gilbert are not alone in their doubts over Snap’s future performance. Meanwhile, Snap is one of the most heavily shorted stocks on Wall Street with short interest at 23.7 percent of its float.
Bottom Line on SNAP Stock
To many investors, Stone’s departure will represent another bump in what has proven to be a treacherous road for SNAP stock since its IPO in 2017.
Just for a reminder, SNAP cited an endorsement from Procter & Gamble’s head of digital partnerships, Craig Stimmel: who said:
“To continue driving growth across our businesses, it is critical to connect with Gen Z and Millennials; Snapchat has been an important part in that strategy.”
SNAP and SNAP stock should continue to benefit from that trend. FB and Facebook stock will not benefit nearly as much from the trend because U.S. millennials and Gen Z make up a much smaller portion of its audience than Snapchat’s.
Viewership of Snap’s original TV shows appears to be growing quickly, as a large share of Snap’s audience likes at least some of the website’s shows.
More than 40% of the people who caught an episode of the new Snap show The Dead Girls Detective Agency went on to watch the entire season. Management also told Q4 conference call participants that the animated Bitmoji Stories reached more than 40 million viewers in December. In sum, the number of people watching marketers’ shows on Snapchat jumped 30% year-over-year, with 25 million-35 million people watching NBC News’ show on Snapchat.
On the other hand, even FB CEO Mark Zuckerberg has admitted that for the last couple of years, the company has focused primarily on social issues like election integrity, content governance, safety and security, and data privacy. All of those initiatives represent defensive reactions by Facebook to its past mistakes rather than efforts that can really improve its bottom line and boost FB stock in the process.
Although Zuckerberg indicated that the social network would pivot this year to more ambitious, offense initiatives, he wasn’t very specific about them and none of them seemed groundbreaking.
Do not forget that Facebook reported fourth-quarter 2018 results on. Its user base growth will be closely monitored by all. Notably, monthly active users increased 199M on a year-over-year basis and 37M sequentially to 2.271B in the last reported quarter.