Snap roared onto the markets during the first week in March. With a self-valuation just under $24 billion, this was the largest tech IPO in years. And investors jumped in during the first few days of trading, sending the stock up by 44% on the first day and finishing the week higher than $27 per share.
However, once investors came to their senses, the stock sold off, falling to levels below $20 per share.
Then, on Monday, Snap rebounded by roughly 5% after the research arms of several banks - including Goldman Sachs (GS - Get Report) and Deutsche Bank (DB - Get Report) - issued favorable forecasts for the stock.
But Snap had yet to plunge down another hill in the roller coaster that has been its short time on the market. And the reason for Tuesday's plunge, which canceled out Monday's rise, is particularly damning to Snap.
Snap is a social media company whose flagship product, Snapchat, specializes in self-destructing videos. That's it - this is purely an ephemeral product by the very definition. And not only are Snapchat's photos short-lived but so is Snap's edge.
That's because Facebook (FB - Get Report) has unveiled a new feature of its Messenger app, called Stories, which allows users to create and selectively share photos that will self-delete in 24 hours. Basically, it's the same thing that Snapchat does but - as is usually the case with Mark Zuckerberg's brainchild - Facebook will end up doing it better.
Facebook offered to buy Snapchat a few years back for $3 billion but CEO Evan Spiegel rejected the offer.
Through the introduction of Stories, Facebook asserts its dominance over the social media industry. The company has grown from being a social media site for college kids to an internet dynamo and one of the biggest online advertising brokers.
Snapchat appeals to a limited market - largely, relatively affluent Millennials. Whereas Facebook has become a tool for communication and the propagation of ideas in developing and underdeveloped countries, Snapchat just lets users put puppy dog noses on their photos. There's little room for this company to grow but there's still plenty of opportunity for Facebook.
This puts Snap's capabilities even behind Twitter (TWTR - Get Report) , to which most comparisons for this company can be drawn. Like Twitter, Snapchat has yet to turn a profit. And Twitter also enjoyed a much ballyhooed IPO - only to have its stock crash within a year.
Investors should heed the Twitter warning - Snapchat is an ephemeral stock representing an ephemeral product. If you want long-lasting gains, stick with Facebook.
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