After shares of Snap Inc. (NYSE:SNAP) began its decent in the last six months, the company’s earnings report, scheduled for Thurs. Oct. 25, after market close, is a non-event. At best, the chat app firm will not change its outlook. But a worst-case scenario looms.
Snap’s new yearly lows signal an end to the fad that propped the stock up in the first place. Unless the company simultaneously grows its user base while increasing revenue, the company’s revenue lag will continue.
And that rushed app update alienated many of its core users. Feature-adds and updates are not supposed to worsen the product and yet Snap managed to do just that. When Facebook (NASDAQ: FB) is also struggling in the markets (bottoming at $150, compared to its $218.62 high) and Twitter (NYSE: TWTR) loses its relevancy again, buying Snap seems like a bet that may not play out favorably.
Investors are better off buying Alphabet (NASDAQ: GOOGL), whose stock price peaked in August, or Microsoft (NASDAQ: MSFT). Both have modest P/Es in the 30 times range and both consistently demonstrate strong growth.
Earlier in the month, Snap’s CEO wrote a memo to its staff, stating it wanted to make a profit in FY 2019. But the cash burn will continue while ad revenue growth will struggle. In Q2, the 2% drop in DAU is due mostly to the re-design. Unless Snap has an app update that attracts more users, expect the company to report higher losses.
