Snap Inc (NYSE:SNAP) was up nearly 50% on Wednesday after the company released its fourth-quarter results. However, it’s still a stock I’d stay far away from.
While revenues were up 72% from last year, the company’s net loss more than doubled. Although the company beat its expectations and saw an increase in its daily active users, investors should not forget this is a company that was accused by an ex-employee of misleading its investors.
Especially in light of the scandal of fake followers being bought on Twitter Inc (NYSE:TWTR), investors should be more skeptical than ever when it comes to user counts.
Ultimately what matters in the end is whether the company is growing, and whether it is making money. While Snap has certainly grown its top line, it is nowhere near enough to offset its bottom line, which keeps going further and further into the red.
Not only is the company unprofitable, but its business model is just not very strong at all and could be replicated by big tech giants like Facebook Inc (NASDAQ:FB) and Alphabet Inc (NASDAQ:GOOG). The lack of a defensible moat and weak fundamentals make Snap a stock to avoid.
With the Dow Jones coming off its worst single-day decline ever, investors should be reminded of the dangers of investing based on speculation and hype, which is all that Snap has going for it.
A stock that has seen a jump of nearly 50% in one day is a big overreaction for beating its targets, and I would expect to see a correction in the days ahead.
