Awwww $Snap Inc(SNAP)$!
How quaint. When Snap dropped to the lower tens and hit a p/s of 4 which was historically among its lowest, I thought 'here we have an interesting valuation play' of a stock that may have a future in ad tech. That was until the latest earnings release.
To be honest, contrary to what most people say and reports, when you analyse their top and bottom lines, they did pretty decent. At leastin my opinion. They actually beat street estimates. So fundamentally they are pretty ok. But what I do not like and what I believed the market saw was the smokescreen by management. Let me explain.
I will cut to the chase because the results are already summarised succinctly by many. It is the the lack of guidance by management as well as willingness to say what is going on with the business. In the earnings call, they claimed they are seeing 9% growth to date this quarter. That is encouraging. However they went on to say that revenue will be flat year over year. Are they trying to say that the holiday period is going to see deceleration in growth? They had a 10% DAU growth and 8% growth in impressions yet cannot guide. And they cannot seem to explain why DAU growth cannot translateto revenue growth. I believe it is this disconnect that triggered the selloff and inability or willingness to discuss it. Many reasons were given which were not good enough. I believe the reason why it is so is because the DAU growth is from the rest of the world which does not monetise as well as US and Europe. Hence it eats into ARPU and makes it tricky to grow revenue even though DAU is going up. If management had been forthcoming, at least it clears the sky. I might be wrong. I don't know. But this is what I believe and if I don't trust management, I am out of the stock or I would not touch it. Trust is vital.
And I believe that is why the market sold off. Oh snapssssss.......
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