Hopes of owning a part of the next internet giant propelled Snap (NYSE:SNAP) shares over 40% higher on its first day of trading - but investor confidence has cratered since. Snap’s maiden earnings will set the tone for investor expectations moving forward.
Negatives
-Facebook (NASDAQ:FB) has added features very similar to Snapchat stories and photo filters to its WhatsApp and Instagram apps and has the muscle to promote them with developers.
-It’s not clear if Snapchat can grow beyond its niche user base. Twitter (NYSE:TWTR) never grew beyond its devoted news junkie users.
Positives
-Snap has momentum on its side because Snapchat is wildly popular with its 18-34 year old user base.
-Augmented reality could be the next big thing in tech and Snap is well positioned in the space.
-Its young user base are remaining loyal in part because, unlike Facebook, Mum and Dad aren’t using it.
To justify its high valuation (Forward P/E ratio of 77 vs 22 for Facebook) Snap must prove it can one day join Facebook and Google (NASDAQ:GOOGL) in the internet advertising big leagues. To keep investors on-board Snap must maintain revenue and user growth and add innovative new features that can keep users and content creators interested.
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