Wednesday marks one week since the largest tech IPO in more than three years. Now, with investors seven days older and (hopefully) wiser, does an investment in Snap (SNAP) still hold its appeal?
Snap made its debut on March 1 by raising $3.4 billion and it started its first full day of trading on Thursday. At the end of the day, the company's stock had closed 44% higher than its opening price at $17 per share, giving the company a market value of $28.4 billion--on par with established companies such as Target (TGT) and CBS (CBS) .
Snap is the company behind popular social media app Snapchat, as well as a venture that makes augmented reality glasses. However, Snapchat lacks the broad appeal that has made Facebook (FB) and even Twitter (TWTR) worthy of investors' attention. Essentially, the app allows users to send self-destructing photo messages--and that's about it.
The ephemeral nature of Snap's product limits the company's growth ability. The app clearly targets millennials in developed countries, whereas Facebook has room to grow in developing nations, where it helps people collect and disseminate information. Snapchat is merely a time-wasting fad.
On top of that, the company has yet to turn a profit, with a rapidly widening net loss of nearly $515 million in 2016. And Snapchat is beginning to bleed users. During the second quarter of 2016, roughly 21 million people used the app every day. By the third quarter, that number had fallen to 10 million. And in the fourth quarter, there were only 5 million average daily active Snapchat users.