Should I snap up SNAP in a snap?
Snap Chat is the new social media company on the block that went IPO last month. I still call it as social media company even though the company would like to call itself as a camera company. I am not fully convinced it's a camera company yet. I haven't seen any proof of it except for the snap glasses sold in limited markets.
Anyways, as with any hyped up tech IPO, SNAP IPO was in much demand. It debuted at $17 and first trade was around $24. The following week, it went all the way up to $28 before crashing down to $19.
The closing price of SNAP as of 03/31/17 was $22.53. It rallied from $19 to this level because of 5 bullish analyst rankings given on 03/27. Interesting thing to note is that all these 5 analyst companies are the underwriters of the stock. Because of some mandatory quite period, they couldn't recommend the stock till 03/27. Even though all these analyst firms claim that there is no collusion between the underwriting and analyst wings of the firm, I leave it to the educated guess of the readers.
When you talk to someone that is bullish on SNAP, they always given an example of FB. Their argument is that SNAP is another FB in the making and that FB also went down to 19 before climbing up to the current levels of 140, so on and so forth. What they fail to mention is the failure of many other high profile tech IPOs at the same time. Couple of names that you could recognize are Twitter and GoPro. Twitter traded as high as $50 and is now trading at $15. Similarly, GoPro went up as high as $70 and is now trading below $10.
For the sake of discussion, let's indulge the bullish analysts and reason with them. Below is the Price to Sales ratio of SNAP compared to other high profile tech companies.
Should I say more?? SNAP is valued twice the valuation of FB and almost 4 times the valuation of Google.
There is absolute no reason for SNAP to be more valuable than FB. FB has universal appeal and is not used just by kids of certain age. FB demographics is quite wide and it has proven it's moat. SNAP primary demographic is the teenage kids and usually their interests are fickle and change pretty rapidly. SNAP could quickly turn into a fad. A counter argument that bulls of SNAP give are that it's a camera company. I hope they are not serious. Because when they say camera company, the one failed company that comes to my mind is GoPro. Remember the time when all the analysts went ga-ga over GoPro that it's not just a camera company but a media company. I wonder what those analysts will say now ???
Buying SNAP now is akin to gambling. Yes, you might get lucky and ride a wave of it and make some money. However, that doesn't fit my value investing style. I would rather stay on the sidelines and watch the fun. I will take a look at it in future again when it has proven itself and is available at a fair price.
Online Advertising market including mobile is a huge multi-billion dollar business now and will continue to grow into the future. There are only two companies that I recommend to buy if you are interested in that space. Google is a leader in online advertising and Facebook a leader in mobile advertising.
Here is the wisdom from the great investing legend and my guru,
"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price - Warren Buffett"
Anyways, as with any hyped up tech IPO, SNAP IPO was in much demand. It debuted at $17 and first trade was around $24. The following week, it went all the way up to $28 before crashing down to $19.
The closing price of SNAP as of 03/31/17 was $22.53. It rallied from $19 to this level because of 5 bullish analyst rankings given on 03/27. Interesting thing to note is that all these 5 analyst companies are the underwriters of the stock. Because of some mandatory quite period, they couldn't recommend the stock till 03/27. Even though all these analyst firms claim that there is no collusion between the underwriting and analyst wings of the firm, I leave it to the educated guess of the readers.
When you talk to someone that is bullish on SNAP, they always given an example of FB. Their argument is that SNAP is another FB in the making and that FB also went down to 19 before climbing up to the current levels of 140, so on and so forth. What they fail to mention is the failure of many other high profile tech IPOs at the same time. Couple of names that you could recognize are Twitter and GoPro. Twitter traded as high as $50 and is now trading at $15. Similarly, GoPro went up as high as $70 and is now trading below $10.
For the sake of discussion, let's indulge the bullish analysts and reason with them. Below is the Price to Sales ratio of SNAP compared to other high profile tech companies.
Should I say more?? SNAP is valued twice the valuation of FB and almost 4 times the valuation of Google.
There is absolute no reason for SNAP to be more valuable than FB. FB has universal appeal and is not used just by kids of certain age. FB demographics is quite wide and it has proven it's moat. SNAP primary demographic is the teenage kids and usually their interests are fickle and change pretty rapidly. SNAP could quickly turn into a fad. A counter argument that bulls of SNAP give are that it's a camera company. I hope they are not serious. Because when they say camera company, the one failed company that comes to my mind is GoPro. Remember the time when all the analysts went ga-ga over GoPro that it's not just a camera company but a media company. I wonder what those analysts will say now ???
Buying SNAP now is akin to gambling. Yes, you might get lucky and ride a wave of it and make some money. However, that doesn't fit my value investing style. I would rather stay on the sidelines and watch the fun. I will take a look at it in future again when it has proven itself and is available at a fair price.
Online Advertising market including mobile is a huge multi-billion dollar business now and will continue to grow into the future. There are only two companies that I recommend to buy if you are interested in that space. Google is a leader in online advertising and Facebook a leader in mobile advertising.
Here is the wisdom from the great investing legend and my guru,
"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price - Warren Buffett"
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