The only aspect of the SNAP IPO that was more horrifying than the media attention given to monitoring SNAP’s first trade of the day is the valuation assigned to it by investors. Janet Yellen undoubtedly was not thinking about SNAP when she happened to mention in her Congressional testimony last week that “valuation metrics do appear…stretched.” That assertion is unarguably one of the most shameless understatements in history.
SNAP is being marketed by its financial promoters as “a camera company.” In reality, it’s little more than a glorified social media business model. The product empowers the user to send photos and videos to friends, rather than using a text message. Big deal. In 2016, SNAP generated $404 million in revenues and but lost $514 million. That’s the manipulated GAAP number for net income. The Company’s operation burned $611 million. Note: these are the numbers prepared by the Company that were used to generate the highest possible price for the IPO, which means the numbers are likely not accurate.
At IPO, SNAP was valued at 54 times revenues. That’s the kind of multiple that a venture capital company would pay for a newly emerging company with a unique product that is still embedded with largely unquantifiable risks of the investment going to zero. SNAP is a newly emerging company which offers just another “flavor” of social medial. Mind you, this is a social media tool that is primarily used by millennials and “Gen Z’ers,” who quickly tire of the latest cellphone app fad du jour. In fact, new user fatigue is already showing up in the number. Over the last 4 quarters, the quarterly growth in growth “active daily users” has slowed considerably – just 4% from Q3 to Q4 – and it's flat-lined in the rest of the world outside of the U.S. and Europe.
As a social media company, SNAP’s user growth-rate curve is already significantly below that of Facebook and Twitter in their early stages as public companies. In truth, if SNAP wants to insist on being a “camera company,” then its stock likely will follow the same path as that of GoPro. GoPro IPO’d in June 2014 at $24. The first trade was at $30. The stock ran up to $98. It currently trades at $9.40.
The overarching issue here is whether or not the grotesquely overvalued SNAP IPO will mark the top of this seemingly indefatigable rise in stocks. Since closing above the 20k holy grail level on February 3rd, the Dow has risen another 1,100 index points in just 17 trading days, while the meatheads on financial bubblevision have been mindlessly cheering on the action with drool sliding down the sides of their mouths. 27.5% percent of this move occurred after Trump’s congressional address Tuesday night. Conspicuously absent from the speech was any new policy ideas which might have been responsible for causing the ludicrous spike up in stocks.
David Stockman has called this action in the stock market “the greatest sucker’s rally of all time.” In today’s episode of the Shadow of Truth, we discuss the insanity that has drawn mom and pop retail investors into the “warm water” with its Siren’s call.
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