Snapchat

Pfäffikon SZ, Switzerland – Earlier this month, the stock price of Snapchat increased a whopping 160%. However, investors bought the wrong stock; that of Snap Interactive. It says a lot about the carelessness at the stock market. Investors are buying anything that is not nailed down, in a (too) highly valued aged bull market. Meanwhile, Snapchat is yet another platform trying to conquer an (ad) place on the mobile phone.

IPO
Snap Inc. is the parent company of Snapchat and wants an IPO in March, which is understandable. The madness and the extreme optimism on global stock markets do recall the undersigned of the late nineties of last century. Investors do not want to miss the boat and buy to buy. Extreme overvaluation is the result, and this sometimes leads to odd situations at the stock market. Snap Inc. wants to fetch about USD 3 billion, against a total valuation of the social media company of approximately USD 20 billion. This rating is for a company with a loss of roughly USD 520 million in 2016 and which was also loss-making in 2015.

Startup
The accounting policies are reminiscent of the start of Facebook. However, there is a difference with Facebook. Snapchat users are significantly younger (12 to 24 years) than those of Facebook. Apparently, it may cost some to reach the youth. Additionally, something else stands out; Television is avoided at a rapid pace by this young audience. Advertisers, therefore, move to this type of platforms.

The key question is whether you should put your money in a company that has been loss-making for years. The success of Snapchat will depend not only on the growth of users but also on the earnings per user. Furthermore, it is difficult to predict whether Snapchat will endure the test of time. When the automotive industry was gaining momentum, there were approximately 3,500 automotive brands globally; since then, just a few left over. Snapchat’s IPO may bring out the speculator in you. Instead, you could better approach this business case as a (value) investor.

It remains for me to wish you a good weekend.


Jan Dwarshuis is CIO at Thirteen Asset Management AG. Dwarshuis writes his columns in a personal capacity. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has no position in above mentioned shares and has no intention of doing so in the next 72 hours.