3 Reasons To Bet Against Snap

Author: Peter Cohan / Source: Forbes Stocks: 10 Things You Need To Know Snap Inc. co-founder Bobby Murphy(L) with CEO Evan Spiegel(C) and

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Stocks: 10 Things You Need To Know

Snap Inc. co-founder Bobby Murphy(L) with CEO Evan Spiegel(C) and NYSE President Thomas Farley, ring the opening bell at the New York Stock Exchange on March 2, 2017 BRYAN R. SMITH/AFP/Getty Images

Snap is making its investors’ money disappear. After plunging 23% on its first quarter earnings report, Snap shares — of which a mere 8.7% are sold short — has further to fall.

I see three reasons for that: a man-child CEO, the competitive threat from Facebook, and an undisciplined growth strategy. (I have no financial interest in the securities mentioned in this post).

On May 10, Snap reported slower revenue growth and a bigger loss than analysts expected. More specifically, its $2.21 billion loss or $2.31 a share was a whopping $1.10 higher than the FactSet consensus.

That 36% sequential increase in revenue to $149.6 million fell $8.7 million below the FactSet consensus and below the 53% growth it enjoyed in the same quarter of 2016. What’s more, Snap’s average revenue per user fell 14.3% from the previous quarter to 90 cents on a 36% boost to 166 million daily active users.

There are three compelling reasons to bet against this company’s stock.

1. Man-child CEO

Evan Spiegel’s conduct in Snap’s May 10 conference call reflects the most frightening issue for investors in its stock. Thanks to the insurmountable voting control of Spiegel and CTO Robert Murphy who hold nearly 89% of its voting power, investors in its shares have no recourse but to pay the tuition for the CEO’s on the job training.

And Spiegel does need lots of training — after all he sounded convinced that he could snap (pun intended) his fingers and change how investors evaluate whether to buy or sell stock.

According to Bloomberg, he “spoke as if the quarter was a success. He deflected questions and concerns by explaining that people may just not understand the value of his platform yet, or the company’s unique business model. For advertisers, the biggest hurdle is ‘education’ about how effective Snap’s products can be, he said. And when it comes to adding users, he said Snap doesn’t stoop to the ‘growth hacking’ tactics of rivals, like asking people to add all their phone contacts as friends, which he views as unsustainable.”

Maybe Spiegel will learn fast and turn into a great CEO. But since he is surrounded by a bubble…

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