Aw, Snapchat! Its shares stood little chance in the face of Facebook | Business

Not everybody can be the next Facebook – or least not easily or quickly. This has been a hard lesson for investors in Snap, owner of Snapchat. They should have known it all along, of course, since Facebook has never disguised its ambition to crush any social media upstarts that get in its way. But it didn’t prevent Snap being valued at a colossal $28bn on its first day of trading on the US stock market in March.

Five months later, the valuation has halved, prompting chief executive Evan Spiegel to pledge that he and co-founder Bobby Murphy won’t sell any of their shares this year. This promise was meant to signal the duo’s deep belief in the long-term success of Snap. In fact, the gesture was no more than the minimum required to sustain flagging spirits. If the founders had left their options open with the shares trading below their IPO price, there would have been panic. As it was, the shares fell 16% after second-quarter results on Thursday.

Debate around those figures was dominated by Spiegel’s assertion that Wall Street analysts are looking at his camera app company through the wrong lens. Forget about the number of daily users, he argued with irritation, and look at the amount of time users spend on Snapchat, and how much advertisers are willing to pay.

Spiegel’s general point is fair: advertising revenue is what ultimately counts. The trouble is, Snap doesn’t yet have a good story to tell on that front. Average revenue per user was $1.05 in the quarter, up from $0.90 in the previous three months. A quarter-on-quarter increase of 16% is not be sniffed at, but the revenue numbers only become explosive when combined with lots of new users. Snap added only 7.3 million, a quarter-on-quarter rise of only 4%, to reach 173 million. No wonder Spiegel would prefer people to look somewhere else.

The awkward fact remains that Snap is actually a small company in its industry. Revenues were $182m in the quarter and $331m over six months. That suggests…

Read the full article from the Source…

Back to Top