SNAPCHAT NOTES

By Gary Kaltbaum- March 2, 2017

As we write this, give or take a few, the market is valuing Snapchat at nearly $30 billion. First off and to be clear, there is no way this company could come public at this valuation in a poor market environment. The company is taking advantage of a ripe market and rightfully so.

But valuation matters. Ok, let’s add one word to that sentence…valuation ULTIMATELY matters. In the short run and sometimes in the intermediate term, valuation can get crazy. We have seen it time and time again. But ultimately, reality does set in. Reality set in with Twitter, Gopro, Fitbit and other “glamour: type names in the recent past. The jury is still out on Snapchat.

The problem with buying the stock with a $30 billion valuation is we have a company that has over $500 million in losses and the sales number is less than the losses. On top of that, business has been slowing as stiff competition comes from the likes of Facebook and others. Sales have grown “bigly” over the past 4 quarters…$39 bil, $72 bil, $128 bil, $166 bil but losses continue double “bigly” and sales growth is waning.

We also heard today that Snapchat is fashioning themselves as a camera company. And we box professionally. There is a reason why the global warming people changed their moniker to climate change. It was for the marketing. Snapchat is now marketing themselves differently because they need the above–18 year olds to get involved. Time will tell. We are just not so sure of their ability to capture the masses.

We have no idea how the stock does in the short run. Anything is possible. Price goes as high as someone is willing to pay and sometimes glamour names can go farther and longer than anyone thinks. Just realize that unless this company starts to grow their numbers in a meaningful fashion and we mean both sales and earnings, eventually, gravity will take over. If this was a company that sold steel pipes, it would not have been able to come public in the double digits.